TIPTREE INC. - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



(Mark One)
x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly period ended March 31, 2016



o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-33549

Tiptree Financial Inc.

(Exact name of Registrant as Specified in Its Charter)



Maryland		38-3754322
(State or Other Jurisdiction of		(IRS Employer
Incorporation of Organization)		Identification No.)


780 Third Avenue, 21st Floor, New York, New York		10017
(Address of Principal Executive Offices)		(Zip Code)

(212) 446-1400

(Registrant’s Telephone Number, Including Area Code)

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer x

Non-accelerated filer ¨ Smaller reporting company ¨

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 4, 2016, there were 34,900,783 shares, par value $0.001, of the registrant’s Class A common stock outstanding and 8,049,029 shares, par value $0.001, of the registrant’s Class B common stock outstanding.

Tiptree Financial Inc.

Quarterly Report on Form 10-Q

March 31, 2016

Table of Contents



ITEM		Page Number
PART I. Financial Information		F-1
Item 1. Financial Statements (Unaudited)		F-1
Consolidated Balance Sheets for March 31, 2016 and December 31, 2015		F-2
Consolidated Statements of Income for the three months ended March 31, 2016 and 2015		F-3
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015		F-4
Consolidated Statement of Changes in Stockholders' Equity for the period ended March 31, 2016		F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015		F-6
Notes to Consolidated Financial Statements		F-8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
Item 3. Quantitative and Qualitative Disclosures About Market Risk		24
Item 4. Controls and Procedures		24

PART II. Other Information		25
Item 1. Legal Proceedings		25
Item 1A. Risk Factors		26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3. Defaults Upon Senior Securities		26
Item 4. Mine Safety Disclosures		26
Item 5. Other Information		26
Item 6. Exhibits, Financial Statement Schedules		27
Signatures		29

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.

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.

Note to Reader

In reading this Quarterly Report on Form 10-Q, references to:

“1940 Act” means the Investment Company Act of 1940, as amended.

“Administrative Services Agreement” means the Administrative Services Agreement between Operating Company (as assignee of TFP) and BackOffice Services Group, Inc., dated as of June 12, 2007.

“AUM” means assets under management.

“Care” means Care Inc. and Care LLC, collectively.

“Care Inc.” means Care Investment Trust Inc. prior to the Contribution Transactions.

“Care LLC” means Care Investment Trust LLC.

“CFPB” means the Consumer Financial Protection Bureau.

“CLOs” means collateralized loan obligations.

“Code” means the Internal Revenue Code of 1986, as amended.

“Consolidated CLOs” means Telos 5 and Telos 6.

“Contribution Transactions” means the closing on July 1, 2013 of the transactions pursuant to the Contribution Agreement by and between the Company, Operating Company and TFP, dated as of December 31, 2012.

“Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“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.

“Gramm-Leach-Bliley Act” means the Gramm-Leach-Bliley Act of 1999.

“Greenfield” means Greenfield Holdings, LLC.

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996.

“Luxury” means Luxury Mortgage Corp.

“Mariner” means Mariner Investment Group LLC.

“MCM” means Muni Capital Management, LLC.

“MFCA” means Muni Funding Company of America LLC.

“NAIC” means the National Association of Insurance Commissioners.

“NPL” means nonperforming residential real estate mortgage loans.

“NPPF I” means Non-Profit Preferred Funding Trust I.

“Operating Company” means Tiptree Operating Company, LLC.

“PFAS” means Philadelphia Financial Administration Services Company, LLC.

“PFG” means Philadelphia Financial Group, Inc.

“RAIT” means RAIT Financial Trust.

“Reliance” means Reliance First Capital, LLC.

“REO” means real estate owned.

“Royal” means Royal Senior Care Management LLC.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Seneca” means Seneca Mortgage Servicing LLC.

“Siena” means Siena Capital Finance LLC.

“Star Asia Entities” means collectively Star Asia Finance, Limited, Star Asia Opportunity, LLC, Star Asia Opportunity II, LLC and Star Asia SPV, LLC.

“Synovus” means Synovus Bank.

“TAMCO” means Tiptree Asset Management Company, LLC.

“TDH” means Tiptree Direct Holdings LLC.

“Telos” means Telos Asset Management, LLC.

“Telos 1” means Telos CLO 2006-1, Ltd.

“Telos 2” means Telos CLO 2007-2, Ltd.

“Telos 3” means Telos CLO 2013-3, Ltd.

“Telos 4” means Telos CLO 2013-4, Ltd.

“Telos 5” means Telos CLO 2014-5, Ltd.

“Telos 6” means Telos CLO 2014-6, Ltd.

“Telos 7” means Telos CLO 2016-7, Ltd.

“TFP” means Tiptree Financial Partners, L.P.

“Tiptree”, the “Company”, “we”, “its”, “us” and “our” means, unless otherwise indicated by the context, Operating Company and its consolidated subsidiaries, together with the standalone net assets held by Tiptree Financial.

“Tiptree Financial” or “TFI”, means Tiptree Financial Inc.

“Transition Services Agreement” means the Transition Services Agreement among TAMCO, Tricadia and Operating Company (as assignee of TFP), dated as of June 30, 2012.

“Tricadia” means Tricadia Holdings, L.P.

“Westside Loan” means that certain loan by an affiliate of Care which was secured by skilled nursing facilities as well as collateral relating to assisted living facilities and a multifamily property.

F-1

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share data)

Item 1. Financial Statements (Unaudited)



	As of
	March 31, 2016		December 31, 2015
Assets	(Unaudited)
Cash and cash equivalents	$	43,225	$	69,400
Restricted cash	21,951		18,778
Securities, available for sale (cost or amortized cost: $182,821 at March 31, 2016 and $185,046 at December 31, 2015)	185,092		184,703
Loans, at fair value	325,912		273,559
Loans owned, at amortized cost, net	58,897		52,531
Mortgage loans held for sale, at fair value (pledged as collateral: $84,745 at March 31, 2016 and $112,743 at December 31, 2015)	93,532		120,836
Notes receivable, net	21,532		21,696
Accounts and premiums receivable, net	78,134		57,056
Reinsurance receivables	373,854		352,926
Deferred acquisition costs	56,185		57,858
Real estate, net	254,072		203,961
Goodwill and intangible assets, net	184,021		186,107
Other receivables	69,919		62,247
Other assets	111,165		104,500
Assets of consolidated CLOs	722,418		728,812
Total assets	$	2,599,909	$	2,494,970
Liabilities and Stockholders’ Equity
Liabilities
Debt, net	$	713,071	$	666,952
Unearned premiums	404,100		389,699
Policy liabilities and unpaid claims	89,927		80,663
Deferred revenue	58,646		63,081
Reinsurance payables	71,932		65,840
Commissions payable	15,358		14,866
Deferred tax liabilities, net	19,069		22,699
Other liabilities and accrued expenses	123,342		94,420
Liabilities of consolidated CLOs	694,012		698,316
Liabilities held for sale and discontinued operations	734		740
Total liabilities	$	2,190,191	$	2,097,276
Commitments and contingencies (Note 24)
Stockholders’ Equity
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding	$	—	$	—
Common stock - Class A: $0.001 par value, 200,000,000 shares authorized, 34,914,772 and 34,899,833 shares issued and outstanding, respectively	35		35
Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 8,049,029 and 8,049,029 shares issued and outstanding, respectively	8		8
Additional paid-in capital	296,531		297,063
Accumulated other comprehensive income (loss), net of tax	1,277		(111		)
Retained earnings	20,522		15,845
Total stockholders’ equity to Tiptree Financial Inc.	318,373		312,840
Non-controlling interests (including $72,721 and $69,278 attributable to Tiptree Financial Partners, L.P., respectively)	91,345		84,854
Total stockholders’ equity	409,718		397,694
Total liabilities and stockholders’ equity	$	2,599,909	$	2,494,970

See accompanying notes to consolidated financial statements.

F-2

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Consolidated Statements of Income (Loss) (Unaudited)

(in thousands, except share data)



	Three Months Ended March 31,
	2016			2015
Revenues:
Net realized and unrealized gains (losses)	$	6,177		$	(98	)
Interest income	7,685			2,883
Service and administrative fees	30,310			21,927
Ceding commissions	10,703			9,937
Earned premiums, net	44,615			37,353
Gain on sale of loans held for sale, net	13,515			2,731
Loan fee income	2,334			1,399
Rental revenue	12,724			9,369
Other income	3,743			3,562
Total revenues	131,806			89,063

Expenses:
Interest expense	6,480			5,129
Payroll and employee commissions	30,608			20,341
Commission expense	33,038			16,528
Member benefit claims	5,750			7,579
Net losses and loss adjustment expense	17,948			12,450
Professional fees	7,362			4,628
Depreciation and amortization	8,377			15,464
Acquisition and transaction costs	383			1,349
Other expenses	17,990			11,144
Total expenses	127,936			94,612

Results of consolidated CLOs:
Income attributable to consolidated CLOs	7,677			9,050
Expenses attributable to consolidated CLOs	6,572			9,361
Net income (loss) attributable to consolidated CLOs	1,105			(311		)
Income (loss) before taxes from continuing operations	4,975			(5,860		)
Less: provision (benefit) for income taxes	(2,439		)	(1,496		)
Income (loss) from continuing operations	7,414			(4,364		)

Discontinued operations:
Income from discontinued operations, net	—			2,345
Discontinued operations, net	—			2,345
Net income (loss) before non-controlling interests	7,414			(2,019		)
Less: net income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P.	2,629			(860		)
Less: net (loss) attributable to non-controlling interests - Other	(770		)	(180		)
Net income (loss) available to common stockholders	$	5,555		$	(979	)

Net income (loss) per Class A common share:
Basic, continuing operations, net	$	0.16		$	(0.08	)
Basic, discontinued operations, net	—			0.05
Basic earnings per share	0.16			(0.03		)

Diluted, continuing operations, net	0.16			(0.08		)
Diluted, discontinued operations, net	—			0.05
Diluted earnings per share	$	0.16		$	(0.03	)

Weighted average number of Class A common shares:
Basic	34,976,485			32,138,455
Diluted	35,084,505			32,138,455

See accompanying notes to consolidated financial statements.

F-3

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)



	Three Months Ended March 31,
	2016			2015

Net income (loss) before non-controlling interests	$	7,414		$	(2,019	)

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains arising during the period	2,659			1,647
Related tax (expense)	(938		)	(585		)
Reclassification of (gains) included in net income	(57		)	(15		)
Related tax expense	20			5
Unrealized gains on available-for-sale securities, net of tax	1,684			1,052

Interest rate swap (cash flow hedge):
Unrealized (loss) on interest rate swap	(136		)	(234		)
Related tax benefit	47			82
Reclassification of (gains) losses included in net income	(319		)	281
Related tax expense (benefit)	112			(98		)
Unrealized (loss) gain on interest rate swap from cash flow hedge, net of tax	(296		)	31

Other comprehensive income, net of tax	1,388			1,083
Comprehensive income	8,802			(936		)
Less: net income (loss) attributable to non-controlling interests - Tiptree Financial Partners, L.P.	2,629			(860		)
Less: net (loss) attributable to non-controlling interests - Other	(770		)	(180		)
Total comprehensive income available to common stockholders	$	6,943		$	104

See accompanying notes to consolidated financial statements.

F-4

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(in thousands, except shares)



	Number of Shares			Par Value
	Class A		Class B	Class A		Class B		Additional paid in capital			Accumulated other comprehensive income (loss)			Retained earnings			Total stockholders’ equity to Tiptree Financial Inc.			Non-controlling interests - Tiptree Financial Partners, L.P.			Non-controlling interests - Other			Total stockholders' equity
Balance at December 31, 2015	34,899,833		8,049,029	$	35	$	8	$	297,063		$	(111	)	$	15,845		$	312,840		$	69,278		$	15,576		$	397,694
Stock-based compensation to directors, employees and other persons for services rendered	163,529		—	—		—		1,241			—			—			1,241			—			—			1,241
Other comprehensive income, net of tax	—		—	—		—		—			1,134			—			1,134			254			—			1,388
Non-controlling interest contributions	—		—	—		—		—			—			—			—			—			4,134			4,134
Non-controlling interest distributions	—		—	—		—		—			—			—			—			(201		)	(264		)	(465		)
Shares purchased under stock purchase plan	(148,590	)	—	—		—		(851		)	—			—			(851		)	—			—			(851		)
Net changes in non-controlling interest	—		—	—		—		(922		)	254			—			(668		)	761			(52		)	41
Dividends declared	—		—	—		—		—			—			(878		)	(878		)	—			—			(878		)
Net income (loss)	—		—	—		—		—			—			5,555			5,555			2,629			(770		)	7,414
Balance at March 31, 2016	34,914,772		8,049,029	$	35	$	8	$	296,531		$	1,277		$	20,522		$	318,373		$	72,721		$	18,624		$	409,718

See accompanying notes to consolidated financial statements.

F-5

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



	Three months ended March 31,
	2016			2015

Operating activities:
Net income (loss) available to common stockholders	$	5,555		$	(979	)
Net income attributable to non-controlling interests - Tiptree Financial Partners, L.P.	2,629			(860		)
Net (loss) attributable to non-controlling interests - Other	(770		)	(180		)
Net income	7,414			(2,019		)
Discontinued operations, net	—			(2,345		)
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
Net realized and unrealized (gain) loss	(6,177		)	98
Net unrealized loss (gain) on interest rate swaps	1,416			—
Change in fair value of contingent consideration	(161		)	—
Non cash compensation expense	388			107
Amortization/accretion of premiums and discounts	332			683
Depreciation and amortization expense	8,377			15,464
Provision for doubtful accounts	504			65
Amortization of deferred financing costs	445			343
(Gain) on sale of loans held for sale	(13,515		)	(2,731		)
Deferred tax (benefit)	(3,642		)	(4,875		)
Changes in operating assets and liabilities:
Mortgage loans originated for sale	(317,808		)	(161,767		)
Proceeds from the sale of mortgage loans originated for sale	357,439			141,561
(Increase) decrease in accounts and premiums receivable	(21,078		)	(12,416		)
(Increase) decrease in reinsurance receivables	(20,928		)	(11,342		)
(Increase) decrease in deferred acquisition costs	1,673			(19,208		)
(Increase) decrease in other receivables	(7,672		)	(1,175		)
(Increase) decrease in other assets	(1,076		)	(5,526		)
Increase (decrease) in unearned premiums	14,401			7,230
Increase (decrease) in policy liabilities	9,264			2,705
Increase (decrease) in deferred revenue	(4,696		)	12,990
Increase (decrease) in reinsurance payable	6,092			20,824
Increase (decrease) in commissions payable	492			(3,033		)
Increase (decrease) in other liabilities and accrued expenses	(1,708		)	(7,595		)
Operating activities from CLOs	2,831			10,697
Net cash provided by (used in) operating activities - continuing operations	12,607			(21,265		)
Net cash (used in) provided by operating activities - discontinued operations	(6		)	30,950
Net cash provided by operating activities	12,601			9,685
Investing Activities:
Purchases of investments	(57,972		)	(13,466		)
Proceeds from sales and maturities of investments	36,768			12,106
(Increase) decrease in loans, net	(6,406		)	(7,188		)
Purchases of real estate capital expenditures	(519		)	(590		)
Purchases of corporate fixed assets	(155		)	(866		)
Proceeds from notes receivable	7,951			8,146
Issuance of notes receivable	(8,251		)	(8,284		)
(Increase) decrease in restricted cash	(3,173		)	764
Business and asset acquisitions, net of cash and deposits	(52,729		)	(81,710		)
Distributions from equity method investments	—			2,275
Deconsolidation of consolidated CLOs	—			80
Investing activities from CLOs	(481		)	15,205
Net cash (used in) investing activities - continuing operations	(84,967		)	(73,528		)
Net cash (used in) investing activities from discontinued operations	—			(1,738		)
Net cash (used in) investing activities	(84,967		)	(75,266		)

F-6 (continued)

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

(in thousands)



	Three months ended March 31,
	2016			2015
Financing Activities:
Non-controlling interest contributions	1,914			2,218
Non-controlling interest distributions	(465		)	(70		)
Change in non-controlling interest	41			(3,120		)
Payment of debt issuance costs	(433		)	(839		)
Proceeds from borrowings and mortgage notes payable	406,357			256,827
Principal paydowns of borrowings and mortgage notes payable	(360,112		)	(146,451		)
Repurchases of common stock	(851		)	(486		)
Financing activities from CLOs	(260		)	(19,853		)
Net cash provided by financing activities - continuing operations	46,191			88,226
Net cash (used in) financing activities - discontinued operations	—			(2,500		)
Net cash provided by financing activities	46,191			85,726
Net increase (decrease) in cash and cash equivalents	(26,175		)	20,145
Cash and cash equivalents – beginning of period - continuing operations	69,400			52,987
Cash and cash equivalents – beginning of period - discontinued operations	—			28,361
Cash and cash equivalents – end of period	43,225			101,493
Less: Reclassification of cash to assets held for sale	—			55,073
Cash and cash equivalents of continuing operations – end of period	$	43,225		$	46,420

Supplemental Schedule of Non-Cash Investing and Financing Activities:
Acquiring real estate properties through, or in lieu of, foreclosure of the related loan	$	1,676		$	—

See accompanying notes to consolidated financial statements.

F-7

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

(1) Organization

Tiptree Financial Inc. (Tiptree and, together with its consolidated subsidiaries, collectively, the Company, or We) is a Maryland Corporation that was incorporated on March 19, 2007. Until July 1, 2013, Tiptree operated under the name Care Investment Trust Inc. (which, for the period prior to July 1, 2013, we refer to as Care Inc.). Tiptree is a diversified holding company which conducts its operations through Tiptree Operating Company, LLC (the Operating Company). Tiptree’s primary focus is on five reporting segments: insurance and insurance services, specialty finance, real estate, asset management, and corporate and other. Tiptree’s Class A Common Stock is traded on the NASDAQ Capital Market under the symbol “TIPT”.

As of December 31, 2015, Tiptree owned, directly or indirectly, approximately 81% of the assets of Operating Company with the remaining 19% held by non-controlling shareholders through their interests in Tiptree Financial Partners, L.P. (TFP). Effective January 1, 2016, Tiptree, TFP and Operating Company created a consolidated group among themselves and various Operating Company subsidiaries for U.S. federal income tax purposes, with Tiptree being the parent company. In connection with the creation of the consolidated group, TFP and the Operating Company elected to be treated as corporations for U.S. federal income tax purposes, and Tiptree contributed its 28% interest in Operating Company to TFP in exchange for 4,281,624 additional common units of TFP. As a result of these steps, as of January 1, 2016, Tiptree directly owns approximately 81% of TFP and TFP directly owns 100% of Operating Company. There was no change to the relative economic position of the parties to the transactions as a result of this reorganization. See Note 23—Income Taxes.

The limited partners of TFP (other than Tiptree itself) have the ability to exchange TFP partnership units for Tiptree Class A common stock at a rate of 2.798 shares of Class A common stock per partnership unit. The percentage of TFP (and therefore Operating Company) owned by Tiptree may increase in the future to the extent TFP’s limited partners choose to exchange their limited partnership units of TFP for Class A common stock of Tiptree.

(2) Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited 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 controlled subsidiaries. The consolidated financial statements are presented in U.S. dollars, the main operating currency of the Company. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2015. 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, 2016 are not necessarily indicative of the results that may be expected for the full year ending on December 31, 2016.

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 those entities deemed to be 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. Generally, Tiptree’s consolidated VIEs are entities which Tiptree is considered the primary beneficiary through its controlling financial interests.

Non-controlling interests on the Consolidated Statements of Income 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.

The Company’s Consolidated Statements of Cash Flows for the three months ended March 31, 2015 have been revised primarily to reflect funds used to originate loans as an investing activity rather than an operating activity. These corrections resulted in an increase in cash provided by operating activities of approximately $9,000, an increase in cash used in investing activities of

F-8

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

approximately $5,000 and a decrease in cash provided by financing activities of approximately $4,000. In addition, certain prior period amounts have been reclassified to conform to the current year presentation.

See “Item 4. Controls and Procedures” for actions the Company is taking to remediate certain material weaknesses as of March 31, 2016, and to enhance its control infrastructure as a result.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. 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 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.

Business Combination Accounting

The Company accounts for business combinations by applying the acquisition method of accounting. The acquisition method requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at fair value as of the closing date of the acquisition. The net assets acquired may consist of tangible and intangible assets and the excess of purchase price over the fair value of identifiable net assets acquired, or goodwill. The determination of estimated useful lives and the allocation of the purchase price to the intangible assets requires significant judgment and affects the amount of future amortization and possible impairment charges. Contingent consideration, if any, is measured at fair value on the date of acquisition. The fair value of any contingent consideration liability is remeasured at each reporting date with any change recorded in other income in the Consolidated Statements of Income. Acquisition and transaction costs are related primarily to completed and potential business combinations and include advisory, legal, accounting, valuation and other professional or consulting fees which are expensed as incurred.

In certain instances, the Company may acquire less than 100% ownership of an entity, resulting in the recording of a non-controlling interest. The non-controlling interest is initially established at a preliminary estimate of fair value, which may be adjusted during the measurement period based upon the results of a valuation study applicable to the business combination.

Fair Value Measurement

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, describes the framework for measuring fair value, and addresses fair value measurement disclosures. 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.

ASC Topic 820 establishes a three‑level valuation hierarchy for disclosure of fair value measurements. 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.

F-9

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

•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

The Company has elected the fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in net realized and unrealized gains (losses) within the Consolidated Statements of Income. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our Consolidated Balance Sheets from those instruments using another accounting method.

Recent Accounting Standards

Recently Adopted Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. These amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information. ASU 2014-08 is effective for the first quarter of 2015 for the Company. The effects of applying the revised guidance will vary based upon the nature and size of future disposal transactions. It is expected that fewer disposal transactions will meet the new criteria to be reported as discontinued operations. The adoption of ASU 2014-08 did not have an impact on the Company's consolidated financial position, results of operations and cash flows.

In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period shall be treated as a performance condition. The adoption of this standard did not have an impact on its Consolidated Balance Sheets, results of operations or cash flows.

In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The pronouncement eliminates the concept of extraordinary items from GAAP. However, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 will be effective for the annual and interim periods beginning after December 15, 2015 with early adoption permitted. The adoption of this standard did not have an impact on the Company’s Consolidated Balance Sheets, results of operations or cash flows.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and consistent with debt discounts. ASU 2015-03 requires retrospective adoption and will be effective

F-10

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

for the Company on January 1, 2016 and early adoption is permitted. Accordingly “Debt, net” is reported net of deferred financing costs as of March 31, 2016 and December 31, 2015, respectively in the Consolidated Balance Sheets. See Note 17—Debt, net.

In April 2015, the FASB issued ASU 2015-05, Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40) which will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. The adoption of this standard did not have an impact on the Company’s Consolidated Balance Sheets, results of operations and cash flows.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which eliminates the requirement for entities to categorize within the fair value hierarchy investments for which fair values are measured at net asset value (NAV) per share (FASB ASC Subtopic 820-10). ASU 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient, instead limiting disclosures to investments for which the entity has elected the expedient. ASU 2015-07 is effective for the Company on January 1, 2016 and early adoption is permitted and retrospective adoption is required. The adoption of this standard did not have an impact on the Company’s Consolidated Balance Sheets, results of operations or cash flows.

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

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this standard affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This standard was originally effective for the Company on January 1, 2017.

On July 9, 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. Reporting entities may choose to adopt the standard as of the original effective date. The deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently reviewing ASU 2014-09 and is assessing the potential effects on its consolidated financial position, results of operations and cash flows.

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

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which makes targeted improvements to the recognition, measurement, presentation and disclosure of certain financial instruments. ASU 2016-01 focuses primarily on the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for certain financial instruments. Among its provisions for public business entities, ASU 2016-01 eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments

F-11

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

measured at amortized cost, requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires the separate presentation in other comprehensive income of the change in fair value of a liability due to instrument-specific credit risk for a liability for which the reporting entity has elected the fair value option, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) and clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-1 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for a limited number of provisions. The Company is currently evaluating the effect on its financial statements.

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 is in the process of evaluating the impact the adoption of ASU 2016-02 will have on our financial position or results of operations.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815, does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the effect upon its financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments -Equity Method and Joint Ventures (Topic 323) which eliminates the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 and should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) which clarify the implementation guidance on principal versus net considerations. The effective date and transition requirements for this standard are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the effect upon its financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition, the amendments in this Update eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the effect upon its financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing which clarifies guidance related to identifying performance obligations and licensing implementation

F-12

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

guidance contained in the new revenue recognition standard. The Update includes targeted improvements based on input the Board received from the Transition Resource Group for Revenue Recognition and other stakeholders. The Update seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the effect upon its financial statements.

(3) Acquisitions

Acquisitions during the three months ended March 31, 2016

Real Estate

Managed Properties

During the three months ended March 31, 2016, Care and affiliates of Care’s partners entered into agreements to acquire and operate two senior housing communities for total consideration of $55,074 (which includes deposits of $125 paid in the fourth quarter of 2015) of which $39,217 was financed through mortgage debt issued in connection with the acquisitions, $3,885 was financed by contributions from the affiliates of Care’s partners, and the remainder was paid with cash on hand. Affiliates of Care’s partners provide management services to the communities under management contracts.

The primary reason for the Company’s acquisition of the senior housing communities is to expand its real estate operations. For the period from acquisition until March 31, 2016, revenue and the net loss in the aggregate for the two managed properties acquired were $1,580 and $1,065, respectively.

The following table summarizes the consideration paid and the amounts of estimated fair value of the assets acquired and the liabilities assumed for the acquisitions completed during the three months ended March 31, 2016:



	2016 Acquisitions
	Real Estate
Consideration:
Cash	$	52,854
Equity	2,220
Fair value of total consideration	$	55,074

Acquisition costs	$	383

Recognized amounts of identifiable assets acquired and liabilities assumed:
Assets:
Real estate, net	$	51,285
Intangible assets, net	3,940
Other assets	117

Liabilities:
Deferred revenue	(261		)
Other liabilities and accrued expenses	(7		)
Total identifiable net assets assumed	$	55,074

The following table shows the values recorded by the Company, as of the acquisition date, for finite-lived intangible assets and their estimated amortization period:

F-13

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)



Intangible Assets	Weighted Average Amortization Period (in Years)	Real Estate
In-place Lease	1.3	$	3,940

The Company's acquisition accounting for transactions completed through March 31, 2016 is still preliminary pending the completion of various analyses and the finalization of estimates used in the determination of fair values. During the measurement period, additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The preliminary measurement of net assets acquired may be adjusted after obtaining additional information regarding, among other things, asset valuations (including market and other information with which to determine fair values), liabilities assumed, the analysis of assumed contracts, and revisions of previous estimates. These adjustments may be significant and will be accounted for within the allowable 1 year measurement period.

Supplemental pro forma results of operations have not been presented for the above 2016 business acquisitions as they are not material in relation to the Company’s reported results.

Acquisitions during the three months ended March 31, 2015

Real Estate

Managed Properties

During the three months ended March 31, 2015, the Company and one of Care’s partners entered into agreements to acquire and operate five senior housing communities for total consideration of $29,251 (which includes deposits of $587 paid in the fourth quarter of 2014) of which $19,943 was financed through mortgage debt issued in connection with the acquisitions, $1,861 was financed by a contribution of cash from the partner, and the remainder was paid with cash on hand. Affiliates of the partner provide management services to the communities under a management contract.

Triple Net Lease Properties

During the three months ended March 31, 2015, the Company acquired the assets of six seniors housing communities for total consideration of $54,536 (which includes deposits of $1,490 paid in the fourth quarter of 2014) of which $39,500 was financed through mortgage debt issued in connection with the acquisitions, and the remainder was paid with cash on hand.

The primary reason for the Company’s acquisition of the senior housing communities was to expand its real estate operations. For the period from acquisition until March 31, 2015, revenue and the net loss in aggregate for the properties acquired were $1,553 and $1,675 respectively.

F-14

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)



	2015 Acquisitions
	Real Estate
Fair value of total consideration	$	83,787

Acquisition costs	$	1,567

Recognized amounts of identifiable assets acquired and liabilities assumed:
Assets:
Real estate, net	$	76,003
Intangible assets, net	8,800
Other assets	92

Liabilities:
Deferred revenue	(589		)
Other liabilities and accrued expenses	(519		)
Total identifiable net assets assumed	$	83,787

Supplemental pro forma results of operations have not been presented for the above 2015 business acquisitions as they are not material in relation to the Company’s reported results.

The following table shows the values recorded by the Company, as of the acquisition date, for finite-lived intangible assets and their estimated amortization period:



Intangible Assets	Weighted Average Amortization Period (in Years)	Real Estate
In-place Lease	8.7	$	8,800

Insurance and Insurance Services - Purchase of Non-controlling Interests

On January 1, 2015, Fortegra Financial Corporation (Fortegra) exercised an option to purchase the remaining 37.6% ownership interest in ProtectCELL it did not own and now owns 100% of ProtectCELL. Upon exercising the option, Fortegra made an initial payment of $3,000. Fortegra has accrued an additional $4,100.

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

The Company classified its Philadelphia Financial Group (PFG) subsidiary as held for sale as of December 31, 2014. At the time of such classification, the pending sale of PFG also met the requirements to be classified as a discontinued operation. The sale of PFG was completed on June 30, 2015.

As a result, the Company has reclassified the income and expenses attributable to PFG to income from discontinued operations, net for the three months ended March 31, 2015.

The following table represents detail of revenues and expenses of discontinued operations in the Consolidated Statements of Income for the three months ended March 31, 2015:

F-15

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)



	Three months ended March 31,
	2015

Revenues:
Net realized gain	$	20
Interest income	1,174
Separate account fees	6,226
Service and administrative fees	12,659
Other income	2
Total revenues	20,081
Expenses:
Interest expense	2,654
Payroll expense	4,612
Professional fees	319
Change in future policy benefits	1,102
Mortality expenses	2,805
Commission expense	808
Depreciation and amortization	457
Other expenses	2,237
Total expenses	14,994
Less: provision for income taxes	2,742
Income from discontinued operations, net	$	2,345

The following table presents the cash flows from discontinued operations for the periods indicated:




	Three Months Ended March 31,
	2015
Net cash provided by (used in):
Operating activities	$	30,950
Investing activities	(1,738		)
Financing activities	(2,500		)
Net cash flows provided by discontinued operations	$	26,712

(5) Operating Segment Data

The Company has five reportable operating segments, which are: (i) insurance and insurance services, (ii) specialty finance, (iii) real estate, (iv) asset management and (v) corporate and other. The Company’s operating segments are organized in a manner that reflects how management views these strategic business units.

Each reportable segment’s income (loss) is reported before income taxes, discontinued operations and non-controlling interests.

Descriptions of each of the reportable segments are as follows:

Insurance and Insurance Services operations are conducted through Fortegra, a specialized insurance company that offers a wide array of consumer related protection products, including credit-related insurance, mobile device protection, and warranty and service contracts. Fortegra also provides third party administration services to insurance companies, retailers, automobile dealers, insurance brokers and agents and financial services companies.

Specialty Finance is comprised of Siena Capital Finance LLC (Siena), which commenced operations in April 2013, and the Company’s mortgage businesses which consists of Luxury, which was acquired in January 2014 and Reliance which was acquired in July 2015. The Company’s mortgage origination business originated loans primarily for sale to institutional investors, including

F-16

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

GSEs, FHA/VA, prime jumbo and super jumbo mortgages, through both retail and wholesale channels and through a call center model, primarily focused on re-financings. Segment results incorporate the revenues and expenses of these subsidiaries since they commenced operations or were acquired.

Siena’s business consists of structuring asset-based loan facilities across diversified industries which include manufacturing, distribution, wholesale, and service companies. Our mortgage origination business includes Luxury, a residential mortgage lender that originates loans, including prime jumbo and super jumbo mortgages for sale to institutional investors and Reliance, a residential mortgage lender that originates loans, primarily GSE and FHA/VA mortgages, focusing on refinancing with a call center model.

Real Estate operations include Care LLC (Care), a wholly-owned subsidiary of Tiptree which has a geographically diverse portfolio of seniors housing properties including senior apartments, assisted living, independent living, memory care and skilled nursing facilities in the U.S.

Asset Management operations is primarily comprised of Telos Asset Management’s (Telos) management of CLOs. Telos is a subsidiary of Tiptree Asset Management Company, LLC (TAMCO), an SEC-registered investment advisor owned by the Company.

Corporate and other operations include the Company’s principal investments and corporate expenses.

The tables below present the components of revenue, expense pre-tax income or loss, and segment assets for each of the operating segments for the following periods:



	Three months ended March 31, 2016
	Insurance and insurance services		Specialty finance			Real estate			Asset management		Corporate and other			Total
Total revenue	89,312		16,566			13,890			2,006		10,032			131,806
Total expense	80,315		17,549			17,749			1,346		10,977			127,936
Net income attributable to consolidated CLOs	—		—			—			1,000		105			1,105
Pre-tax income (loss)	$	8,997	$	(983	)	$	(3,859	)	$	1,660	$	(840	)	$	4,975
Less: provision for income taxes														(2,439		)
Discontinued operations, net														—
Net income before non-controlling interests														$	7,414
Less: net income attributable to non-controlling interests from continuing operations and discontinued operations														1,859
Net income available to common stockholders														$	5,555

Segment Assets as of March 31, 2016
Segment assets	$	981,412	$	186,260		$	278,634		$	1,966	$	429,219		$	1,877,491
Assets of consolidated CLOs														722,418
Total assets														$	2,599,909



	Three months ended March 31, 2015
	Insurance and insurance services		Specialty finance		Real estate			Asset management				Corporate and other					Total
Total revenue	72,379		6,255		9,424			1,047				(42		)			89,063
Total expense	68,353		5,820		13,605			1,010		⁽¹	⁾	5,824			⁽¹	⁾	94,612
Net income (loss) attributable to consolidated CLOs	—		—		—			1,837				(2,148		)			(311		)
Pre-tax income (loss)	$	4,026	$	435	$	(4,181	)	$	1,874			$	(8,014	)			$	(5,860	)
Less: (benefit) for income taxes																	(1,496		)
Discontinued operations																	2,345
Net (loss) before non-controlling interests																	$	(2,019	)

F-17

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)



	Three months ended March 31, 2015
	Insurance and insurance services		Specialty finance		Real estate		Asset management		Corporate and other		Total
Less: net (loss) attributable to non-controlling interests from continuing operations and discontinued operations											(1,040		)
Net (loss) available to common stockholders											$	(979	)

Segment Assets as of December 31, 2015
Segment assets	$	929,054	$	208,201	$	230,546	$	1,820	$	396,537	$	1,766,158
Assets of consolidated CLOs											728,812
Total assets											$	2,494,970

⁽¹⁾ Bonus of $300 was reclassified from Corporate and other to Asset management to conform to the current period presentation.

(6) Securities, Available for Sale

All of the Company’s investments in available for sale securities as of March 31, 2016 and December 31, 2015 are held by Fortegra. The following tables present the Company's investments in available for sale securities:



	As of March 31, 2016
	Cost or Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	51,082	$	779	$	(15	)	$	51,846
Obligations of state and political subdivisions	54,271		892		(18		)	55,145
Corporate securities	66,087		679		(214		)	66,552
Asset backed securities	1,490		41		—			1,531
Certificates of deposit	892		—		—			892
Equity securities	6,081		183		(64		)	6,200
Obligations of foreign governments	2,918		14		(6		)	2,926
Total	$	182,821	$	2,588	$	(317	)	$	185,092

	As of December 31, 2015
	Cost or Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	53,274	$	83	$	(221	)	$	53,136
Obligations of state and political subdivisions	51,942		466		(73		)	52,335
Corporate securities	68,400		89		(651		)	67,838
Asset backed securities	1,525		4		—			1,529
Certificates of deposit	893		—		—			893
Equity securities	6,081		106		(79		)	6,108
Obligations of foreign governments	2,931		—		(67		)	2,864
Total	$	185,046	$	748	$	(1,091	)	$	184,703

F-18

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(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, 2016
	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	$	10,772	$	(14	)	57	$	19	$	(1	)	2
Obligations of state and political subdivisions	8,198		(14		)	25	898		(4		)	3
Corporate securities	19,006		(198		)	106	1,179		(16		)	8
Equity securities	1,078		(11		)	4	936		(53		)	4
Obligations of foreign governments	568		(6		)	8	—		—			—
Total	$	39,622	$	(243	)	200	$	3,032	$	(74	)	17

	As of December 31, 2015
	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	$	35,588	$	(221	)	146	$	—	$	—		—
Obligations of state and political subdivisions	18,500		(59		)	45	400		(14		)	2
Corporate securities	56,373		(634		)	302	267		(17		)	6
Equity securities	1,998		(79		)	8	—		—			—
Obligations of foreign governments	2,863		(67		)	18	—		—			—
Total	$	115,322	$	(1,060	)	519	$	667	$	(31	)	8

The Company does not intend to sell the investments that were in an unrealized loss position at March 31, 2016, 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 or cost for equity securities. The unrealized losses were attributable to changes in interest rates and not credit-related issues. As of March 31, 2016, based on the Company's review, none of the fixed maturity or equity 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. There have been no other-than-temporary impairments recorded by the Company for the three months ended March 31, 2016.

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. Excluded from this table are equity securities since they have no contractual maturity.



	As of
	March 31, 2016				December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	22,888	$	22,874	$	20,347	$	20,319
Due after one year through five years	75,012		75,348		76,967		76,578
Due after five years through ten years	57,391		58,892		56,133		56,240
Due after ten years	19,959		20,247		23,993		23,929
Asset backed securities	1,490		1,531		1,525		1,529
Total	$	176,740	$	178,892	$	178,965	$	178,595

Purchases of available for sale securities were $7,898 and $13,466 for the three months ended March 31, 2016 and 2015, respectively. Proceeds from maturities, calls and prepayments of available for sale securities were $9,535 and $8,170 with associated gains of $57 and $4, for the three months ended March 31, 2016 and 2015, respectively. Proceeds from the sale of

F-19

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

available for sale securities for the three months ended March 31, 2016 and 2015, were $0 and $722 with associated gains of $0 and losses of $9, respectively.

(7) Investment in Loans

The following table presents the Company’s loans, measured at fair value and amortized cost:



	As of
	March 31, 2016		December 31, 2015
Loans, at fair value
Corporate loans	$	275,604	$	233,861
Non-performing residential loans	48,899		38,289
Other loans receivable	1,409		1,409
Total loans, at fair value	$	325,912	$	273,559

Loans owned at amortized cost, net
Asset backed loans and other loans	59,400		52,994
Less: Allowance for loan losses	503		463
Total loans owned, held at amortized cost, net	$	58,897	$	52,531

Net deferred loan origination fees included in asset backed loans	$	4,011	$	3,520

Loans, at fair value

Corporate Loans

Corporate loans primarily include syndicated leveraged loans held by the Company as principal investments, which consist of $275,604 in loans primarily held by the Company’s warehouse credit facility in anticipation of launching a new CLO, Telos CLO 2016-7, Ltd. (Telos 7), and the Telos Credit Opportunities fund at March 31, 2016. As of March 31, 2016, the unpaid principal balance on these loans was $285,805.

The difference between fair value of the Corporate loans and the unpaid principal balance was $10,201.

Non-performing Residential Loans

As of March 31, 2016, the Company’s investments included $48,899 of loans collateralized by real estate in the process of foreclosure of which the unpaid principal balance was $79,142. The difference between the fair value of the NPLs and the unpaid principal balance was $30,243.

Included in other assets are $3,677 of foreclosed residential real estate property.

Loans Owned at amortized cost, net

Asset backed loans

Siena structures asset-based loan facilities in the $1,000 to $25,000 range across diversified industries, which include manufacturing distribution, wholesale, and service companies. As of March 31, 2016 and December 31, 2015, the Company carried $58,197 and $51,831 in loans receivable on its Consolidated Balance Sheets. Collateral for asset-backed loan receivables, as of March 31, 2016 and December 31, 2015 consisted of inventory, equipment and accounts receivable. Management reviews collateral for these loans on at least a monthly basis or more frequently if a draw is requested and has determined that no impairment existed as of March 31, 2016. As of March 31, 2016, there were no delinquencies in the Siena portfolio and all loans were classified as performing.

F-20

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

(8) Mortgage Loans Held for Sale

The following table summarized the total mortgage loans held for sale, at fair value:



	As of
	March 31, 2016		December 31, 2015
Mortgage loans held for sale, unpaid principal	$	90,248	$	117,039
Change in fair value	3,284		3,797
Total mortgage loans held for sale, at fair value	$	93,532	$	120,836

The unpaid principal balance and fair value of held for sales that are 90 days or more past due were $142 and $66, respectively, as of March 31, 2016. The unpaid principal balance and fair value of held for sales that are 90 days or more past due were $142 and $82, respectively, as of December 31, 2015. The Company discontinues accruing interest on all loans that are 90 days or more past due.

(9) Fair Value of Financial Instruments

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used to measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying the hierarchy discussed in Note 2, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.

The Company’s fair value measurement is based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management analyzes the third party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources.

The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and demand considerations and market volatility.

Available for Sale Securities

Available for sale securities are generally classified within either Level 1 or Level 2 of the fair value hierarchy and are based on prices provided by an independent pricing service and a third party investment manager who provide a single price or quote per security.

The following details the methods and assumptions used to estimate the fair value of each class of available for sale securities and the applicable level each security falls within the fair value hierarchy:

U.S Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Municipal Securities, Corporate Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and

F-21

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

a third party investment manager. The prices provided by the independent pricing service are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 of the fair value hierarchy.

Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1 of the fair value hierarchy.

Equity Securities: The fair values of publicly traded common and preferred stocks were obtained from market value quotations provided by an independent pricing service and fall under Level 1 of the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks were based on prices obtained from an independent pricing service using unobservable inputs and fall under Level 3 of the fair value hierarchy.

Derivative Assets and Liabilities: Derivatives are comprised of credit default swaps (CDS), index credit default swaps (CDX), interest rate lock commitments (IRLC), to be announced mortgage backed securities (TBA) and interest rate swaps (IRS). The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. In general, the fair value of CDSs and CDXs are based on dealer quotes. Because significant inputs, other than unadjusted quoted prices in active markets are used to determine the dealer quotes, such as price volatility, the Company classifies them as Level 2 in the fair value hierarchy. The fair value of IRS is based upon either valuation pricing models, which represent the amount the Company would expect to pay at the balance sheet date if the contracts were exited, or by obtaining broker or counterparty quotes. Because there are observable inputs used to arrive at these prices, the Company has classified IRS within Level 2 of the fair value hierarchy. Our mortgage origination subsidiaries issue IRLCs to its customers, which are carried at estimated fair value on the Company’s Consolidated Balance Sheet. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of an expected fall out assumption. The fair values of these commitments generally result in a Level 3 classification. Our mortgage origination subsidiaries manage their exposure by entering into best efforts delivery commitments with loan investors referred to as “best efforts lock”. For loans not locked with investors on a best efforts basis, the Company enters into hedge instruments, to protect against movements in interest rates. The fair values of these hedge instruments generally result in a Level 2 classification.

The Company uses certain of its IRS as part of its risk management strategy to manage interest rate risk and cash flow risk that may arise in connection with the variable interest rate provision of the Company's preferred trust securities. These derivatives are classified as cash flow hedges.

Trading Assets and Liabilities: Trading assets and liabilities consist primarily of privately held equity securities, exchange-traded equity securities, CLOs, collateralized debt obligations (CDOs), derivative assets and liabilities, tax exempt securities, and U.S. Treasury short positions. The fair value of privately held equity securities are based on quotes obtained from dealers or internally developed valuation models. Because significant inputs used to determine the dealer quotes or model values are not observable, such as projected future earnings and price volatility, the Company has classified them within Level 3 of the fair value hierarchy. The Company’s U.S. Treasury short position is priced through dealer indicative quotes and as such is classified as Level 2.

Positions in securitized products such as CLOs and CDOs are based on quotes obtained from dealers and valuation models. When these quotes are based directly or indirectly on observable inputs such as quoted prices for similar assets exchanged in an active or inactive market, the Company has classified them within Level 2 of the fair value hierarchy. If these quotes are based on valuation models using unobservable inputs such as expected future cash flows, default rates, supply and demand considerations, and market volatility, the Company has classified them within Level 3 of the fair value hierarchy.

The fair value of tax exempt securities is determined by obtaining quotes from independent pricing services. In most cases, quotes are obtained from two pricing services and the average of both quotes is used. The independent pricing services determine their quotes using observable inputs such as current interest rates, specific issuer information and other market data for such securities. Therefore, the estimate of fair value is subject to a high degree of variability based upon market conditions, the availability of issuer information and the assumptions made. The valuation inputs used to arrive at fair value for such debt obligations are generally classified within Level 2 or Level 3 of the fair value hierarchy.

F-22

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The Company determines the purchase price for NPLs at the time of acquisition and for each subsequent valuation by using a discounted cash flow valuation model and considering alternate loan resolution probabilities, including modification, liquidation, or conversion to REO. Observable inputs to the model include loan amounts, payment history, and property types. Our NPLs are on nonaccrual status at the time of purchase as it is probable that principal or interest is not fully collectible.

NPLs converted to REOs were measured at fair value on a non-recurring basis during the three months ended March 31, 2016 (the Company did not have investments in REO status in prior year period). The carrying value of REOs at March 31, 2016 was $3,677. Upon conversion to REO the fair value is estimated using broker price opinion (BPO). BPOs are subject to judgments of a particular broker formed by visiting a property, assessing general home values in an area, reviewing comparable listings, and reviewing comparable completed sales. These judgments may vary among brokers and may fluctuate over time based on housing market activities and the influx of additional comparable listings and sales.

The following tables present the Company’s fair value hierarchies for financial assets and liabilities, including the balances associated with the consolidated CLOs, measured on a recurring basis:



	As of March 31, 2016
	Quoted prices in active markets Level 1		Other significant observable inputs Level 2		Significant unobservable inputs Level 3		Fair value
Assets:
Trading assets:
Equity securities	$	21,261	$	—	$	12,911	$	34,172
CLO	—		—		1,490		1,490
Total trading securities	21,261		—		14,401		35,662

Derivative assets:
Interest rate lock commitments	—		—		3,488		3,488
TBA – mortgage backed securities	—		194		—		194
Foreign currency forward contracts	—		4		—		4
Credit derivatives	—		12,121		—		12,121
Total derivative assets	—		12,319		3,488		15,807

Total trading assets (included in other assets)	21,261		12,319		17,889		51,469

Available for sale securities:
Equity securities	6,152		—		48		6,200
U.S. Treasury securities and U.S. government agencies	—		51,846		—		51,846
Obligations of state and political subdivisions	—		55,145		—		55,145
Obligations of foreign governments	—		2,926		—		2,926
Certificates of deposit	892		—		—		892
Asset backed securities	—		1,531		—		1,531
Corporate bonds	—		66,552		—		66,552
Total available for sale securities	7,044		178,000		48		185,092

Mortgage loans held for sale	—		93,532		—		93,532

Investments in loans, at fair value:
Corporate loans	—		52,774		222,830		275,604
Non-performing loans	—		—		48,899		48,899
Other loans receivable	—		125		1,284		1,409
Total investments in loans, at fair value	—		52,899		273,013		325,912

F-23

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)



	As of March 31, 2016
	Quoted prices in active markets Level 1		Other significant observable inputs Level 2		Significant unobservable inputs Level 3		Fair value
Total financial instruments attributable to Non-CLOs included in consolidated assets	28,305		336,750		290,950		656,005

Financial instruments included in assets of consolidated CLOs:
Investments in loans, at fair value	—		145,085		551,279		696,364
Total financial instruments included in assets of consolidated CLOs	—		145,085		551,279		696,364

Total	$	28,305	$	481,835	$	842,229	$	1,352,369


Liabilities:
Trading liabilities:
U.S. Treasury securities	$	—	$	20,345	$	—	$	20,345
Total trading securities	—		20,345		—		20,345

Derivative liabilities:
Interest rate swaps	—		3,602		—		3,602
Forward delivery contracts	—		92		11		103
TBA-mortgage backed securities	—		612		—		612
Total derivative liabilities	—		4,306		11		4,317

Total trading liabilities (included in other liabilities)	—		24,651		11		24,662

Contingent consideration payable	—		—		952		952

Preferred notes payable	—		—		1,386		1,386

Total financial instruments attributable to Non-CLOs included in consolidated liabilities	—		24,651		2,349		27,000

Financial instruments included in liabilities of consolidated CLOs:
Notes payable of CLOs	—		—		683,947		683,947
Total financial instruments included in liabilities of consolidated CLOs	—		—		683,947		683,947

Total	$	—	$	24,651	$	686,296	$	710,947



	As of December 31, 2015
	Quoted prices in active markets Level 1		Other significant observable inputs Level 2		Significant unobservable inputs Level 3		Fair value
Assets:
Trading assets:
Equity securities	$	3,786	$	—	$	8,941	$	12,727
Tax exempt securities	—		1,732		8,314		10,046
CLO	—		—		1,768		1,768
Total trading securities	3,786		1,732		19,023		24,541

F-24

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)



	As of December 31, 2015
	Quoted prices in active markets Level 1		Other significant observable inputs Level 2		Significant unobservable inputs Level 3		Fair value
Derivative assets:
Interest rate lock commitments	—		—		3,384		3,384
TBA - mortgage backed securities	—		179		—		179
Forward delivery contracts	—		—		11		11
Credit derivatives	—		11,945		—		11,945
Total derivative assets	—		12,124		3,395		15,519

Total trading assets (included in other assets)	3,786		13,856		22,418		40,060

Available for sale securities:
Equity securities	6,060		—		48		6,108
U.S. Treasury securities and U.S. government agencies	—		53,136		—		53,136
Obligations of state and political subdivisions	—		52,335		—		52,335
Obligations of foreign governments	—		2,864		—		2,864
Certificates of deposit	893		—		—		893
Asset backed securities	—		1,529		—		1,529
Corporate bonds	—		67,838		—		67,838
Total available for sale securities	6,953		177,702		48		184,703

Mortgage loans held for sale	—		120,836		—		120,836

Investments in loans, at fair value
Corporate loans	—		55,956		177,905		233,861
Non-performing loans	—		—		38,289		38,289
Other loans receivable	—		125		1,284		1,409
Total investments in loans, at fair value	—		56,081		217,478		273,559

Total financial instruments attributable to Non-CLOs included in consolidated assets	10,739		368,475		239,944		619,158

Financial instruments included in assets of consolidated CLOs:
Investments in loans, at fair value	—		159,892		520,892		680,784
Total financial instruments included in assets of consolidated CLOs	—		159,892		520,892		680,784

Total	$	10,739	$	528,367	$	760,836	$	1,299,942

Liabilities:
Trading liabilities:
U.S. Treasury securities	$	—	$	19,679	$	—	$	19,679
Total trading securities	—		19,679		—		19,679

Derivative liabilities:
Interest rate swaps	—		2,310		—		2,310
Forward delivery contracts	—		8		—		8
TBA-mortgage backed securities	—		150		—		150
Foreign currency forward contracts	—		5		—		5
Total derivative liabilities	—		2,473		—		2,473

F-25

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)



	As of December 31, 2015
	Quoted prices in active markets Level 1		Other significant observable inputs Level 2		Significant unobservable inputs Level 3		Fair value
Total trading liabilities (included in other liabilities)	—		22,152		—		22,152

Contingent consideration payable	—		—		936		936

Preferred notes payable	—		—		1,562		1,562

Total financial instruments attributable to Non-CLOs included in consolidated liabilities	—		22,152		2,498		24,650

Financial instruments included in liabilities of consolidated CLOs:
Notes payable of CLOs	—		—		683,827		683,827
Total financial instruments included in liabilities of consolidated CLOs	—		—		683,827		683,827

Total	$	—	$	22,152	$	686,325	$	708,477

The following table represents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:



	Three Months Ended March 31,
	2016						2015
	Non-CLO assets			CLO assets			Non-CLO assets			CLO assets			Assets held for sale
Balance at January 1,	$	239,944		$	520,892		$	11,577		$	576,811		$	3,771,458
Net realized gains (losses)	(1,641		)	33			2,445			591			—
Net unrealized gains (losses)	8,838			(5,173		)	740			(2,765		)	—
Purchases	21,624			15,805			—			8,897			47,633
Sales	(13,377		)	(9,962		)	(109		)	(28,281		)	(35,352		)
Issuances	313			393			—			429			—
Transfer into Level 3 ⁽¹⁾	51,637			66,012			—			88,333			—
Transfer adjustments (out of) Level 3 ⁽¹⁾	(14,712		)	(36,721		)	(2,904		)	(159,247		)	—
Adoption of ASU 2015-02	—			—			—			(169,214		)	—
Attributable to policyowner	—			—			—			—			23,918
Conversion to real estate owned and mortgage held for sale	(1,676		)	—			—			—			—
Balance at March 31,	$	290,950		$	551,279		$	11,749		$	315,554		$	3,807,657

Changes in unrealized gains (losses) included in earnings related to assets still held at period end	$	3,492		$	(5,716	)	$	(113	)	$	(2,074	)	$	—

(1) All transfers are deemed to occur at end of period. Transfers between Level 2 and 3 were a result of subjecting third-party pricing on both CLO and Non-CLO assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation.

F-26

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The following table represents additional information about liabilities that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:



	Three Months Ended March 31,
	2016					2015
	Non-CLO Liabilities			CLO Liabilities		Non-CLO Liabilities		CLO Liabilities
Balance at January 1,	$	2,498		$	683,827	$	2,802	$	1,785,207
Net unrealized gains (losses)	(149		)	120		—		14,392
Purchases	—			—		—		—
Dispositions	—			—		—		(19,853		)
Adoption of ASU 2015-02	—			—		—		(543,191		)
Balance at March 31,	$	2,349		$	683,947	$	2,802	$	1,236,555

Changes in unrealized (losses) gains included in earnings related to liabilities still held at period end	$	(149	)	$	120	$	—	$	14,392

The following is quantitative information about Level 3 significant unobservable inputs used in fair valuation. Disclosure of this information is not required in circumstances where a valuation (unadjusted) is obtained from a third-party pricing service and the information regarding the unobservable inputs is not readily available to the Company.



	Fair Value as of						Actual or Range (Weighted average)
Assets ⁽¹⁾	March 31, 2016		December 31, 2015		Valuation Technique	Unobservable input(s)	March 31, 2016	December 31, 2015
Tax exempt security	$	—	$	121	Discounted cash flow	Short term cash flows	N/A	0.0%
Tax exempt security	—		8,193		Market yield analysis	Yield to maturity	N/A	6.50%
Interest rate lock commitments	3,488		3,384		Internal model	Pull through rate	45% - 95%	55% - 95%
Forward delivery contracts	—		11		Internal model	Pull through rate	N/A	80% - 100%
NPLs	48,899		38,289		Discounted cash flow	See table below ⁽²⁾	See table below	See table below
Total	$	52,387	$	49,998

(1) Financial assets classified as Level 3 and fair valued using significant unobservable inputs classified as Level 3 have not been provided as these are not readily available to the Company (including servicing release premium for interest rate lock commitments and forward delivery contracts).

(2) The significant unobservable inputs used in the fair value measurement of our NPLs are discount rates, loan resolution timeline, 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 timeline. 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 our NPLs as of March 31, 2016 (the Company did not invest in NPLs in the prior year period):



Unobservable inputs	High	Low	Average⁽¹⁾
Discount rate	30.0%	16.0%	22.5%
Loan resolution time-line (Years)	2.3	0.5	1.3
Value of underlying properties	$1,800	$20	$256
Holding costs	48.9%	5.3%	8.7%
Liquidation costs	29.6%	7.5%	9.4%

(1) Weighted based on value of underlying properties.

F-27

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)



	Fair Value as of						Actual or Range (Weighted average)
Liabilities ⁽¹⁾	March 31, 2016		December 31, 2015		Valuation Technique	Unobservable input(s)	March 31, 2016	December 31, 2015
Contingent consideration payable - Reliance	$	900	$	900	Internal model	Forecast EBITDA	$481 - $3,367	$1,326 - $3,517
						Book value growth rate	5.0%	5.0%
						Asset volatility	1.6% - 17.9%	2.4% - 20.1%
Contingent consideration payable - Luxury	52		36		Internal model	Projected cash available for distribution	$81,501 - $306,917	$828 - $1,281
Preferred notes payable	1,386		1,562		Internal model	Discount rate	13.96%	12.0%
Forward delivery contracts	11		—		Internal model	Pull through rate	80% - 100%	N/A
Total	$	2,349	$	2,498

(1) Not included in this table are the debt obligations of consolidated CLOs, measured and leveled on the basis of the fair value of the (more observable) financial assets of the consolidated CLOs. See Note 16—Assets and Liabilities of Consolidated CLOs.

The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value on a recurring or non-recurring basis and their respective levels within the fair value hierarchy:



	As of March 31, 2016
	Level within Fair Value Hierarchy	Fair Value		Carrying Value
Assets:
Notes receivable, net	2	$	20,225	$	21,532
Total Assets		$	20,225	$	21,532

Liabilities:
Debt, net	3	$	720,708	$	711,686
Total Liabilities		$	720,708	$	711,686



	As of December 31, 2015
	Level within Fair Value Hierarchy	Fair Value		Carrying Value
Assets:
Notes receivable, net	2	$	20,250	$	21,696
Total Assets		$	20,250	$	21,696

Liabilities:
Debt, net	3	$	672,096	$	671,648
Total Liabilities		$	672,096	$	671,648

Notes receivable: To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits. Categorized as Level 2 of the fair value hierarchy.

Debt: The fair value of notes payable is determined based on contractual cash flows discounted at market rates for mortgage notes payable and either dealer quotes or contractual cash flows discounted at market rates for other notes payable. Categorized as Level 3 of the fair value hierarchy.

Additionally, the following financial assets and liabilities on the Consolidated Balance Sheets are not carried at fair value, but whose carrying amounts approximate their fair value:

F-28

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized as Level 1 of the fair value hierarchy.

Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in other assets and other liabilities and accrued expenses an approximate their fair value due to their short‑term nature. Categorized as Level 2 of the fair value hierarchy.

Accounts and premiums receivable, net, and other receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized as Level 2 of the fair value hierarchy.

Loans Owned, at Amortized Cost: The fair value of loans owned, at amortized cost approximates its carrying value because the interest rates on the loans are based on a variable market interest rate. Categorized as Level 3 of the fair value hierarchy.

(10) Notes Receivable, net

Real estate

Care owns a 75% interest in a Managed Property. In connection therewith, subsidiaries of Care received notes from affiliates of the 25% partner. The cost basis of the notes at March 31, 2016 and December 31, 2015 was approximately $3,857 and $3,807, respectively. As of March 31, 2016, all of these notes were performing.

Insurance and insurance services

As of March 31, 2016, Fortegra held $17,675 in notes receivable, net. The majority of these notes totaling $12,593 consist of receivables from Fortegra’s premium financing program. A total of $948 was for notes receivable under its Pay us Later Program, which allows customers to finance the cost of electronic mobile devices and or protection programs on these devices. The remaining $4,134 represents unsecured notes receivable issued to various business partners in order to solidify relationships and grow its business. The Company has established a valuation allowance against its notes receivable of $1,320 as of March 31, 2016. As of March 31, 2016, there were $1,720 in balances classified as 90 days plus past due.

(11) Reinsurance Receivables

The following table presents the effect of reinsurance on premiums written and earned by Fortegra for the following period:



Premiums	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
	Written			Earned			Written			Earned
Direct and assumed	$	182,500		$	168,099		$	144,284		$	137,054
Ceded	(135,109		)	(123,484		)	(112,341		)	(99,701		)
Net	$	47,391		$	44,615		$	31,943		$	37,353

The following table presents the effect of reinsurance on losses and loss adjustment expenses (LAE) incurred by Fortegra for the following period:



	Three Months Ended March 31,
Losses and LAE incurred	2016			2015
Direct and assumed	$	64,049		$	38,158
Ceded	(46,101		)	(25,708		)
Net losses & LAE incurred	$	17,948		$	12,450

F-29

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The following table presents the components of the reinsurance receivables:



	As of
	March 31, 2016		December 31, 2015
Prepaid reinsurance premiums:
Life ⁽¹⁾	$	61,028	$	61,919
Accident and health ⁽¹⁾	51,281		54,357
Property	195,565		180,236
Total	307,874		296,512

Ceded claim reserves:
Life	2,722		2,664
Accident and health	8,922		8,889
Property	37,912		30,911
Total ceded claim reserves recoverable	49,556		42,464
Other reinsurance settlements recoverable	16,424		13,950
Reinsurance receivables	$	373,854	$	352,926

⁽¹⁾ Including policyholder account balances ceded.

The following table presents the aggregate amount included in reinsurance receivables that is comprised of the three largest receivable balances from unrelated reinsurers:



	As of
	March 31, 2016
Total of the three largest receivable balances from unrelated reinsurers	$	158,165

At March 31, 2016, the three unrelated reinsurers from whom Fortegra has the largest receivable balances were: London Life Reinsurance Company (A. M. Best Rating: A); London Life International Reinsurance Corporation (A. M. Best Rating: not rated); and MFI Insurance Company, LTD (A. M. Best Rating: Not rated). The related receivables of London Life International Reinsurance Corporation and MFI Insurance Company, LTD are collateralized by assets held in trust accounts and letters of credit due to their offshore relationships. At March 31, 2016, the Company does not believe there is a risk of loss as a result of the concentration of credit risk in the reinsurance program.

(12) Real Estate, Net

The following table contains information regarding the Company’s investment in real estate as of the following periods:



	As of March 31, 2016
	Land		Buildings		Accumulated depreciation			Total
Triple Net Lease Properties	$	12,173	$	77,161	$	(4,707	)	$	84,627
Managed Properties	15,040		160,065		(6,931		)	168,174
Other real estate ⁽¹⁾	—		1,675		(404		)	1,271
Total	$	27,213	$	238,901	$	(12,042	)	$	254,072

	As of December 31, 2015
	Land		Buildings		Accumulated depreciation			Total
Triple Net Lease Properties	$	12,173	$	77,161	$	(4,118	)	$	85,216
Managed Properties	9,905		113,396		(5,842		)	117,459
Other real estate ⁽¹⁾	—		1,675		(389		)	1,286
Total	$	22,078	$	192,232	$	(10,349	)	$	203,961

(1) Represents a single family residential property located in Connecticut that is being rented through the Company's subsidiary, Luxury.

F-30

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

Future Minimum Rental Revenue

The following table presents the future minimum annual rental revenue under the noncancelable terms of all operating leases as of:



	March 31, 2016
Remainder of 2016	$	5,357
2017	7,232
2018	7,335
2019	7,441
2020	7,550
Thereafter	37,833
Total	$	72,748

The schedule of minimum future rental revenue excludes residential lease agreements, generally having terms of one year or less. Rental revenues from residential leases were $10,880 and $8,311 for the three months ended March 31, 2016 and 2015, respectively.

(13) Goodwill and Intangible Assets, Net

The following table presents identifiable intangible assets, accumulated amortization, and goodwill by segment:



	As of												As of
	March 31, 2016												December 31, 2015
	Insurance and insurance services			Real estate			Specialty finance			Total			Insurance and insurance services			Real estate			Specialty finance			Total
Customer relationships	$	50,500		$	—		$	—		$	50,500		$	50,500		$	—		$	—		$	50,500
Accumulated amortization	(1,846		)	—			—			(1,846		)	(1,200		)	—			—			(1,200		)
Trade names	6,500			—			800			7,300			6,500			—			800			7,300
Accumulated amortization	(949		)	—			(60		)	(1,009		)	(771		)	—			(40		)	(811		)
Software licensing	8,500			—			640			9,140			8,500			—			640			9,140
Accumulated amortization	(2,267		)	—			(69		)	(2,336		)	(1,842		)	—			(46		)	(1,888		)
Insurance policies and contracts acquired	36,500			—			—			36,500			36,500			—			—			36,500
Accumulated amortization	(30,802		)	—			—			(30,802		)	(28,510		)	—			—			(28,510		)
Insurance licensing agreements⁽¹⁾	13,000			—			—			13,000			13,000			—			—			13,000
Leases in place	—			27,344			—			27,344			—			23,404			—			23,404
Accumulated amortization	—			(16,537		)	—			(16,537		)	—			(14,095		)	—			(14,095		)
Intangible assets, net	79,136			10,807			1,311			91,254			82,677			9,309			1,354			93,340
Goodwill	89,854			—			2,913			92,767			89,854			—			2,913			92,767
Total	$	168,990		$	10,807		$	4,224		$	184,021		$	172,531		$	9,309		$	4,267		$	186,107

(1) Represents intangible assets with an indefinite useful life. Impairment tests are performed at least annually on these assets.

Amortization expense on intangible assets was $6,026 and $14,022 for the three months ended March 31, 2016 and 2015, respectively. The Company conducts annual impairment tests of its goodwill as of December 31. For the three months ended March 31, 2016, no impairment was recorded on the Company’s goodwill or intangibles. As of December 31, 2015, the Company recorded an impairment of $699 associated with Luxury within the Specialty Finance segment as a result of qualitative and quantitative procedures associated with our annual impairment testing.

F-31

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The following table presents the amortization expense on intangible assets for the next five years by relevant segment:



	As of
	March 31, 2016
	Insurance and insurance services (VOBA)		Insurance and insurance services (other)		Real estate		Specialty finance
Remainder of 2016	$	3,381	$	4,578	$	3,452	$	128
2017	1,250		9,865		1,935		171
2018	465		9,077		621		171
2019	217		7,509		621		171
2020	123		5,027		621		171
2021 and thereafter	262		24,382		3,557		499
Total	$	5,698	$	60,438	$	10,807	$	1,311

(14) Other Assets

The following table presents the components of Other assets as reported in the Consolidated Balance Sheets:



	As of
	March 31, 2016		December 31, 2015
Trading assets, at fair value	$	51,469	$	40,060
Due from brokers and trustees	23,124		29,052
Furnitures, fixtures and equipment, net	6,521		7,024
Inventory	2,065		2,449
Prepaids	5,475		2,690
Income tax receivable	5,028		5,810
Other	17,483		17,415
Total other assets	$	111,165	$	104,500

Unrealized gains recognized during the three months ended March 31, 2016 on trading assets still held at March 31, 2016 was $7,788.

(15) Derivative Financial Instruments and Hedging

The Company utilizes derivative financial instruments as part of its overall investment and hedging activities. Derivative contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative activities are primarily classified by underlying credit risk and interest rate risk. In addition, the Company is also subject to additional counterparty risk should its counterparties fail to meet the contract terms. The derivative financial instruments are located within trading assets at fair value within Other assets and trading liabilities within Other liabilities and accrued expenses on the Consolidated Balance Sheets.

Derivatives, at fair value

Credit Derivatives

Credit derivatives are generally defined as over‑the‑counter contracts between a buyer and seller of protection against the risk of default on a set of obligations issued by a specified reference entity.

Credit Default Swap Indices (CDX) are credit derivatives that reference multiple names through underlying baskets or portfolios of single name credit default swaps. The Company enters into these contracts as both a buyer of protection and seller of protection to manage the credit risk exposure of its investment portfolio. The Company is required to deposit cash collateral for these positions equal to an initial 2.25% of the notional amount of the sold protection side, subject to increase based on additional maintenance margin as a result of decreases in value. As of March 31, 2016, the total margin was $6,750.

F-32

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

Foreign Currency Forward Contracts

Foreign currency forward contracts are used as a foreign currency hedge where the Company has an obligation to either make or take a foreign currency payment at a future date. If the date of the foreign currency payment and the last trading date of the foreign currency forwards contract are matched, the Company has in effect “locked in” the exchange rate payment amount. The Company, through its subsidiary Siena, has entered into a foreign exchange forward contract to protect its position on its foreign loans receivable.

Interest Rate Lock Commitments

The Company enters into interest rate lock commitments (IRLCs) in connection with its mortgage banking activities to fund residential mortgage loans with certain terms at specified times in the future. IRLCs that relate to the origination of mortgage loans that will be classified as held-for-sale are considered derivative instruments under applicable accounting guidance. As such, these IRLCs are recorded at fair value with changes in fair value typically resulting in recognition of a gain when the Company enters into IRLCs. In estimating the fair value of an IRLC, the Company assigns a probability that the loan commitment will be exercised and the loan will be funded. The fair value of the commitments is derived from the fair value of related mortgage loans, net of estimated costs to complete. Outstanding IRLCs expose the Company to the risk that the price of the loans underlying the commitments might decline from inception of the rate lock to funding of the loan. To manage this risk, the Company utilizes forward delivery contracts and TBA mortgage backed securities to economically hedge the risk of potential changes in the value of the loans that would result from the commitments.

Forward Delivery Contracts

The Company enters into forward delivery contracts with investors to manage the interest rate risk associated with IRLCs and loans held for sale.

TBA Mortgage Backed Securities

The Company enters into to be announced (TBA) mortgage backed securities which facilitate hedging and funding by allowing the Company to prearrange prices for mortgages that are in the process of originating. The Company utilizes these hedging instruments for Agency (Fannie Mae and Freddie Mac) and FHA/VA (Ginnie Mae) eligible IRLCs and typically commit them to investors at prices higher than otherwise available.

Interest Rate Swaps

The Company is exposed to interest rate risk when there is an unfavorable change in the value of investments as a result of adverse movements in the market interest rates. The Company enters into interest rate swaps (IRS) to protect against such adverse movements in interest rates. The Company is required to post collateral for the benefit of the counterparty. This is included in other assets in the Consolidated Balance Sheet.

The Company is party to interest rate swaps in order to economically hedge interest rate risk associated with its real estate portfolio. All of these swaps have the same counterparty.

F-33

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The following table summarizes the gross notional and fair value amounts of derivatives (on a gross basis) categorized by underlying risk:



	Notional Values		Asset Derivatives		Liability Derivatives
As of March 31, 2016
Credit risk:
Credit derivatives	$	598,141	$	38,643	$	24,890

Foreign currency risk:
Foreign currency forward contracts	736		4		—

Interest rate risk:
Interest rate lock commitments	140,186		3,488		—
Forward delivery contracts	50,216		—		103
TBA mortgage backed securities	147,250		194		612
Interest rate swaps	106,988		—		3,602
Sub-total	444,640		3,682		4,317
Total	$	1,043,517	$	42,329	$	29,207

As of December 31, 2015
Credit risk:
Credit derivatives	$	598,141	$	41,232	$	27,655

Foreign currency risk:
Foreign currency forward contracts	683		—		5

Interest rate risk:
Interest rate lock commitments	156,309		3,384		—
Forward delivery contracts	52,054		11		8
TBA mortgage backed securities	136,750		179		150
Interest rate swaps	78,988		—		2,310
Sub-total	424,101		3,574		2,468
Total	$	1,022,925	$	44,806	$	30,128

The Company nets the credit derivative assets and liabilities as these credit derivatives are subject to legally enforceable netting arrangements with the same party. The following table presents derivative instruments that are subject to offset by a master netting agreement:



	As of
	March 31, 2016			December 31, 2015
Derivatives subject to netting arrangements:
Credit default swap indices sold protection	$	38,643		$	41,232
Credit default swap indices bought protection	(24,890		)	(27,655		)
Gross assets recognized	13,753			13,577
Collateral payable	(1,632		)	(1,632		)
Net assets recognized (included in other assets)	$	12,121		$	11,945

Derivatives designated as cash flow hedging instruments

Fortegra has an IRS with a counterparty, pursuant to which Fortegra swapped the floating rate portion of its outstanding preferred trust securities to a fixed rate. This IRS is designated as a cash flow hedge and expires in June 2017. As of the December 4, 2014 acquisition date, the IRS was considered a new hedging relationship, and has been redesignated as a hedge.

F-34

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

As of March 31, 2016, the notional amount of this cash flow hedge was $35,000, with a fair value of $(1,159). Based on analysis under the long-haul method, the IRS has an unrealized loss net of tax of $185, and a variable rate of interest of 0.63% and a fixed rate of 3.47%.

For the three months ended March 31, 2016, the pretax loss recognized in AOCI on the derivative-effective portion was $136, with a pretax gain reclassified from AOCI into income-effective portion of $319. The amount estimated to be reclassified to earnings from AOCI during the next 12 months is $57. These net losses reclassified into earnings are primarily expected to increase net interest expense related to the respective hedged item.

(16) Assets and Liabilities of Consolidated CLOs

The term CLO generally refers to a special purpose vehicle that owns a portfolio of investments and issues various tranches of debt and subordinated note securities to finance the purchase of those investments. The investment activities of a CLO are governed by extensive investment guidelines, generally contained within a CLO’s “indenture” and other governing documents which limit, among other things, the CLO’s exposure to any single industry or obligor and provide that the CLO’s assets satisfy certain ratings requirements. Most CLOs have a defined investment period during which they are allowed to make investments and reinvest capital as it becomes available. The CLOs are considered variable interest entities (VIE).

The assets of each of the CLOs, including cash and cash equivalents, are held solely as collateral to satisfy the obligations of the CLOs. The Company does not own and has no right to the benefits from, nor does it bear the risks associated with, the assets held by the CLOs, beyond its direct investments in, and investment advisory fees generated from, the CLOs. If the Company were to liquidate, the assets of the CLOs would not be available to its general creditors, and as a result, the Company does not consider these assets available for the benefit of its investors. Additionally, the investors in the CLOs have no recourse to the Company’s general assets for the debt issued by the CLOs. Therefore, this debt is not the Company’s obligation. The Company consolidates entities when it is determined to be the primary beneficiary under current VIE accounting guidance.

The table below represents the assets and liabilities of the consolidated CLOs that are included in the Company’s Consolidated Balance Sheet as of the dates indicated:



	As of
	March 31, 2016		December 31, 2015
Assets:
Cash and cash equivalents	$	22,543	$	38,716
Loans, at fair value ⁽¹⁾	696,364		680,784
Other assets	3,511		9,312
Total assets of consolidated CLOs	$	722,418	$	728,812

Liabilities:
Debt	$	683,947	$	683,827
Other liabilities and accrued expenses	10,065		14,489
Total liabilities of consolidated CLOs	$	694,012	$	698,316

Net	$	28,406	$	30,496

(1) The unpaid principal balance for these loans is $749,085 and $727,357 and the difference between their fair value and UPB is $52,721 and $46,573 at March 31, 2016 and December 31, 2015 respectively.

F-35

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The Company’s beneficial interests and maximum exposure to loss related to the Consolidated CLOs are limited to (i) ownership in the subordinated notes and related participations in management fees of the CLOs and (ii) accrued management fees. Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative results in the net amount of the CLOs shown above to be equivalent to the beneficial interests retained by Tiptree as illustrated in the below table:



Beneficial interests:	As of
	March 31, 2016		December 31, 2015
Subordinated notes	$	27,773	$	29,857
Accrued management fees	633		639
Total beneficial interests	$	28,406	$	30,496

The following table represents revenue and expenses of the consolidated CLOs included in the Company’s Consolidated Statements of Income for the periods indicated:



	Three Months Ended March 31,
	2016			2015
Income:
Net realized and unrealized losses	$	(2,765	)	$	(8,484	)
Interest income	10,442			17,534
Total revenue	7,677			9,050
Expenses:
Interest expense	6,338			8,900
Other expense	234			461
Total expense	6,572			9,361

Net income (loss) attributable to consolidated CLOs	$	1,105		$	(311	)

As summarized in the table below, the application of the measurement alternative results in the consolidated net income summarized above to be equivalent to Tiptree’s own economic interests in the CLOs which are eliminated upon consolidation:



Economic interests:	Three Months Ended March 31,
	2016		2015
Distributions received and realized and unrealized gains (losses) on the subordinated notes held by the Company, net	$	436	$	(2,149	)
Management fee income	669		1,838
Total economic interests	$	1,105	$	(311	)

F-36

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

(17) Debt, Net

The following table summarizes the balance of the Company’s debt holdings, net of discounts and deferred financing costs, excluding notes payable of consolidated CLOs. See Note 16—Assets and Liabilities of Consolidated CLOs, for notes payable of the consolidated CLOs:



	Maximum Borrowing Capacity as of March 31, 2016		As of
			March 31, 2016			December 31, 2015
Operating Company:
CLO warehouse borrowing	$	306,250	$	119,480		$	119,480
Secured credit agreement	125,000		45,000			45,500
Original issue discount on secured credit agreement			(426		)	(476		)
Deferred financing costs, net			(628		)	(691		)
Subtotal Operating Company			163,426			163,813

Fortegra:
Secured credit agreement- revolving credit facility	90,000		68,334			46,500
Secured credit agreement- term loan	43,750		43,750			45,000
Revolving line of credit	15,000		8,192			8,303
Preferred trust securities	35,000		35,000			35,000
Deferred financing costs, net			(1,890		)	(2,019		)
Subtotal Fortegra			153,386			132,784

Luxury:
Mortgage warehouse borrowing	90,500		46,701			66,858
Preferred notes payable	1,386		1,386			1,562
Mortgage borrowing	712		712			717
Subtotal Luxury			48,799			69,137

Reliance:
Mortgage warehouse borrowing	51,000		35,898			43,456
Deferred financing costs, net			(5		)	(15		)
Subtotal Reliance			35,893			43,441

Siena:
Revolving line of credit	75,000		44,428			36,192
Subordinated debt	3,500		3,500			3,500
Deferred financing costs, net			(565		)	(624		)
Subtotal Siena			47,363			39,068

Care:
Mortgage borrowings	208,716		205,414			166,664
Unamortized (discount) premium on mortgage borrowings			52			54
Deferred financing costs, net			(2,318		)	(2,020		)
Subtotal Care			203,148			164,698

Telos Credit Opportunities Fund, L.P.:

Secured credit agreement	100,000		61,896			54,900
Deferred financing costs, net			(840		)	(889		)
Subtotal Telos			61,056			54,011

Total debt outstanding, net			$	713,071		$	666,952

F-37

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The table below presents the amount of interest expense the Company incurred on its debt for the following periods:



	Three Months Ended March 31,
	2016		2015
Interest expense	$	6,389	$	4,963

The following table presents the future maturities of the unpaid principal balance on the Company’s long-term debt (excluding preferred notes payable) as of:



	March 31, 2016
Remainder of 2016	$	142,148
2017	129,529
2018	50,981
2019	134,497
2020	135,362
Thereafter	125,788
Total	$	718,305

Operating Company

Secured Credit Agreement - Fortress

On September 18, 2013, Operating Company entered into a Credit Agreement with Fortress and borrowed $50,000 thereunder, with an associated original issue discount of $1,000, which is being amortized over the term of the agreement. The Credit Agreement allows Operating Company to borrow additional amounts up to a maximum aggregate of $125,000, subject to satisfaction of certain customary conditions. The obligations of Operating Company under the Credit Agreement are secured by liens on substantially all of the assets of Operating Company. The principal of, and all accrued and unpaid interest on, all loans under the Credit Agreement become immediately due and payable on September 18, 2018. Loans under the Credit Agreement bear interest at a variable rate per annum equal to one-month LIBOR with a LIBOR floor of 1.25%, plus a margin of 6.50% per annum. The weighted average rate paid for the three months ended March 31, 2016 was 7.75%. The principal amount of the loan is to be repaid in quarterly installments, the amount of which may be adjusted based on the Net Leverage Ratio (as defined in the Credit Agreement) at the end of each fiscal quarter.

On January 26, 2015, Tiptree entered into the Amendment to its existing Credit Agreement with Fortress providing for additional term loans in an aggregate principal amount of $25,000 to Tiptree. Tiptree was required to repay and did repay $25,000 of all the aggregate outstanding additional term loans under the Fortress credit agreement upon the closing of the PFG sale on June 30, 2015.

The Company is obligated to pay interest on a monthly basis and has incurred interest expense of $891 and $1,265 for the three months ended March 31, 2016 and 2015 respectively. The remaining amortization of the original issue discount totaled $493 and $693 for the three months ended March 31, 2016 and 2015, respectively.

The Company capitalized an aggregate of approximately $1,456 of costs associated with the original transaction and the amendment discussed in the preceding paragraph. The Company is amortizing the costs over the life of the facility. The Company recorded approximately $63 and $139 of expense for the three months ended March 31, 2016 and 2015, respectively, related to these capitalized costs.

CLO Warehouse Borrowing

Also included in debt are any warehouse lines outstanding associated with the Company’s CLOs. As of March 31, 2016 there was $119,480 outstanding for Telos 7 with a maturity date, unless earlier repaid, of January 9, 2017.

Operating Company believes it was in compliance with all of the financial covenants contained in the Credit Agreement as of March 31, 2016.

F-38

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

Fortegra

Secured Credit Agreement - Wells Fargo Bank, N.A.

On December 4, 2014, Fortegra entered into an amended and restated $140,000 secured credit agreement (the Credit Agreement) among: (i) Fortegra and its wholly owned subsidiary LOTS Intermediate Co. (LOTS), as borrowers (Fortegra and LOTS, collectively, the Borrowers); (ii) the initial lenders named therein; and (iii) Wells Fargo Bank, National Association, as administrative agent, swingline lender, and issuing lender. The Credit Agreement provides for a $50,000 term loan facility and a $90,000 revolving credit facility. Subject to earlier termination, the Credit Agreement matures on December 4, 2019. The weighted average rate paid for the three months ended March 31, 2016 was 3.22%. The Borrowers are required to repay the aggregate outstanding principal amount of the initial $50,000 term loan facility in consecutive quarterly installments of $1,250 that commenced on March 2015.

Fortegra believes it was in compliance with the covenants required by the respective Credit Agreement in effect at March 31, 2016.

Revolving Line of Credit - Synovus Bank

Fortegra has a $15,000 revolving line of credit agreement (the Line of Credit) with Synovus Bank, entered into on October 9, 2013, with a maturity date of April 30, 2017. The Line of Credit bears interest at a rate of 300 basis points plus 90-day LIBOR, and is available specifically for the South Bay premium financing product. The weighted average rate paid for the three months ended March 31, 2016 was 3.62%.

At March 31, 2016, Fortegra believes it was in compliance with the covenants required by the Line of Credit.

Preferred Trust Securities

Fortegra has $35,000 of preferred trust securities due June 15, 2037. The preferred trust securities bear interest at a floating rate of 3-month LIBOR plus the annual base rate of 4.10%. Interest is payable quarterly. In 2012, Fortegra entered into an interest rate swap that exchanges the floating rate for a fixed rate, as further described in Note 15—Derivative Financial Instruments and Hedging. The Company may redeem the preferred trust securities, in whole or in part, at a price equal to the full outstanding principal amount of such preferred trust securities outstanding plus accrued and unpaid interest.

Luxury

Mortgage Warehouse Borrowing

As of March 31, 2016, Luxury has three separate uncommitted warehouse lines of credit in place with a combined maximum borrowing amount of $90,500. The credit agreements pay a floating rate of LIBOR plus 2.75% (with a minimum LIBOR of 3.00%) one of which matures on May 2016 and the other two on June 2016. Luxury’s three credit agreements contain customary financial covenants that require, among other items, minimum amounts of tangible net worth, profitability, maximum indebtedness ratios, and minimum liquid assets. As of March 31, 2016, Luxury believes it was in compliance or had obtained waivers of compliance with such financial covenants. Luxury’s ability to borrow under the warehouse line of credit agreements is not adversely affected by the waivers.

Notes Payable

On January 31, 2014, Luxury issued a series of notes to pay several former shareholders of Luxury as part of the acquisition of Luxury by Tiptree. Although the notes accrue interest at a rate of 12.0% per annum, payments to former shareholders are subject to cash available for distribution based on the profitability of Luxury subject to stipulations governed by the note agreements. The notes all mature on January 31, 2021.

Mortgage Borrowing

In December 2013, Luxury entered into a mortgage note agreement with the Bank of Danbury. The mortgage note matures on January 2024 and the monthly payments are based upon a twenty-five year amortization schedule. The mortgage note has a floating rate of Prime plus 1.00%. The mortgage note is secured by the underlying rental property, a guaranty by Luxury, and a personal guaranty by one of the shareholders of Luxury.

F-39

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

Reliance

As of March 31, 2016, Reliance has an uncommitted warehouse line of credit with a maximum aggregate borrowing amount of $50,000 and a maturity date of June 2016. The credit agreement, with Citibank, is collateralized by specific mortgage loans held for sale and pays a rate of one - month LIBOR plus margin. For the three months ended March 31, 2016, Reliance utilized approximately $35,898 of this line of credit.

Independently of the original line of credit Reliance entered into an agreement for an additional $1,000 with an expiration of August 31, 2016. As of March 31, 2016 there have been no amounts drawn on this facility.

In addition to the Citibank line of credit, a subsidiary of Tiptree entered into a warehouse credit facility with Reliance pursuant to which Tiptree may provide up to $20,000 to Reliance for the purpose of originating mortgage loans. As of the date of this report, no amounts are outstanding under this warehouse credit facility.

Siena

Revolving line of credit - Wells Fargo Bank

On July 25, 2013 Siena established a revolving line of credit with Wells Fargo Bank. As of March 31, 2016, this revolving line has a maximum borrowing amount of $75,000 with an interest rate of LIBOR plus 2.25% and a maturity date of October 17, 2019.

Subordinated note - Solaia Credit

On April 9, 2015, Siena entered into a $3,500 subordinated promissory note with Solaia Credit Strategies LLC, an affiliate of Solaia Capital Management LLC, which owns approximately 38% of Siena. The note has a maturity date of April 9, 2020 or six months following maturity of the Wells Fargo facility described above. The note has an interest rate of 12.50%. Siena may prepay the note following the first anniversary of issuance but is required to pay a prepayment premium expensed as a percentage of the prepayment amount as follows: 3.0% prior to the second anniversary of issuance; 2.0% after the second but before the third anniversary and 1.0% after the third but before the fourth anniversary.

Care

Mortgage Borrowings

The three separate loans (each, a Greenfield VA Lease Loan and, collectively, the Greenfield VA Lease Loans) with KeyCorp Real Estate Capital Markets, Inc. (KeyCorp) have an aggregate balance of $14,729 as of March 31, 2016. The Greenfield VA Lease Loans bear interest at a fixed rate of 4.76%, amortize over a thirty-year period, provide for monthly interest and principal payments and mature on May 1, 2022. The Greenfield VA Lease Loans are secured by separate cross-collateralized, cross-defaulted first priority deeds of trust on each of the Greenfield VA Lease properties. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

The two separate loans from Liberty Bank for the Calamar Properties have an aggregate balance of $17,286 as of March 31, 2016. Both of these loans amortize over a thirty year period at a weighted average fixed rate of 4.21% with one maturing on August 2019 and the other on February 2020. These loans are secured by separate first priority mortgages on each of the properties. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

The two separate loans from First Niagara Bank for the Terraces Portfolio have an aggregate balance of $15,201 as of March 31, 2016. Both of these loans amortize over a twenty-five year period at a floating rate of LIBOR plus 2.50% and mature on December 2020. These loans are secured by separate first priority mortgages on each of the properties. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

The two separate loans from First Niagara Bank for the Heritage Portfolio have an aggregate balance of $31,278 as of March 31, 2016. Both of these loans amortize over a twenty-five year period at a floating rate of LIBOR plus 2.75% and mature on November 2020. These loans are secured by separate first priority mortgages on each of the properties. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

F-40

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The loan with Synovus Bank for the Greenfield Portfolio Managed Properties has an aggregate balance of $23,095 as of March 31, 2016. The loan includes 36 months of interest only payments and amortizes over a thirty year period at a floating rate of LIBOR plus 3.20% and matures on October 2019. The loan is secured by first priority mortgages on each of the properties. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

The Housing and Urban Development loan from Red Mortgage Capital for the additional Heritage Portfolio seniors housing community has an aggregate balance of $5,909 as of March 31, 2016. The loan amortizes over a thirty year period at a fixed rate of 4.72% and matures on May 2040. The loan is secured by a first priority mortgage on the property. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

Effective February 9, 2015, in connection with Care and Royal’s acquisition of five seniors housing communities, the parties entered into a $22,500, five year loan (subject to a holdback). The agreement includes 36 months of interest only payments and a $2,000 commitment which will be available to be drawn on between February 9, 2016 and February 9, 2019, subject to certain conditions. As of March 31, 2016, the loan had an aggregate balance of $19,998 and matures on February 2020. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

Effective March 30, 2015, affiliates of Care secured a $39,500, 10 year loan (subject to a holdback), in connection with its acquisition of six seniors housing communities. The mortgage debt carries a fixed rate of 4.25% and matures on April 1, 2025. As of March 31, 2016, the loan had an aggregate balance of $38,700. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

Effective January 20, 2016, in connection with Care and Heritage’s acquisition of one seniors housing community, the parties entered into a $28,000, 7 year loan, which includes 24 months of interest only payments. The loan carries a variable rate of 30-day LIBOR plus 2.05% and matures on January 31, 2023. As of March 31, 2016, the loan had an aggregate balance of $28,000. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

Effective March 1, 2016, in connection with Care and Royal’s acquisition of one seniors housing community, the parties entered into a $11,218, 5 year loan, which includes 36 months of interest only payments and a $1,000 commitment which will be available to be drawn on one year after closing, subject to certain conditions. The loan carries a variable rate of 30-day LIBOR plus 2.75% and matures on February 29, 2021. As of March 31, 2016, the loan had an aggregate balance of $11,218. As of March 31, 2016, management believes Care is in compliance with the representations and covenants for this loan transaction.

Telos Credit Opportunities Fund

On May 5, 2015, a subsidiary of Telos Credit Opportunities Fund, L.P. (Telos Credit Opportunities), a leveraged loan fund in which Tiptree is the sole investor and which is managed by Tiptree’s Telos Asset Management LLC subsidiary, entered into an asset based secured credit facility of up to $100,000 with Capital One, N.A. as administrative agent and the lenders party thereto.

The credit agreement has a maturity date of May 5, 2020. As of March 31, 2016, $61,896 was outstanding under the credit agreement with a weighted average interest rate of 2.92% for the period ended March 31, 2016. On January 14, 2016, Telos COF I, LLC, a subsidiary of Telos Credit Opportunities, amended its existing credit agreement with Capital One, N.A., as administrative agent, and the other lenders party thereto. The amendment reduced the maximum size of the facility to $100,000 and increased advance rates on certain types of loans. Telos Credit Opportunities may prepay borrowings under the facility but is required to pay a prepayment premium expressed as a percentage of the amount prepaid as follows: 1.5% if prior to May 5, 2016 and 1% if prior to May 5, 2017.

Consolidated CLOs

The Company includes in its Consolidated Balance Sheets, as part of liabilities of consolidated CLOs, the debt obligations used to finance the investment in corporate loans and other investments owned by the CLOs that it manages. See Note 16—Assets and Liabilities of Consolidated CLOs, for additional information.

F-41

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

(18) Other Liabilities and Accrued Expenses

The following table presents the components of Other liabilities and accrued expenses as reported in the Consolidated Balance Sheets:



	As of
	March 31, 2016		December 31, 2015
Trading liabilities, at fair value	$	24,662	$	22,152
Accrued interest payable	1,748		1,354
Due to broker and trustee	35,979		8,622
Accounts payable and accrued expenses	50,108		53,594
Other liabilities	10,845		8,698
Total other liabilities and accrued expenses	$	123,342	$	94,420

Unrealized losses recognized during the three months ended March 31, 2016 on trading liabilities still held at March 31, 2016 was $2,516.

(19) Stockholders’ Equity

As of March 31, 2016, Tiptree’s authorized capital stock consists of 100,000,000 shares of preferred stock, $0.001 par value, 200,000,000 shares of Class A common stock, $0.001 par value, and 50,000,000 shares of Class B common stock, $0.001 par value. As of March 31, 2016 and December 31, 2015, no shares of preferred stock were issued and outstanding.

As of March 31, 2016 and December 31, 2015, there were 34,914,772 and 34,899,833 shares of Class A common stock issued and outstanding, respectively. As of March 31, 2016 and December 31, 2015, there were 8,049,029 shares of Class B common stock issued and outstanding, respectively.

TFP owns a warrant to purchase 652,500 shares of Class A common stock at $11.33 per share which is immediately exercisable and expires on September 30, 2018.

All shares of our Class A common stock have equal rights as to earnings, assets, dividends and voting. Shares of Class B common stock have equal voting rights but no economic rights (including no right to receive dividends or other distributions upon liquidation, dissolution or otherwise). Distributions may be paid to holders of Class A common stock if, as and when duly authorized by our board of directors and declared out of assets legally available therefor.

For the three months ended March 31, 2016 and 2015, the Company declared dividends of $0.025, per common share of Class A stock, respectively on March 15, 2016 and March 31, 2015. The Company paid such dividends after the quarter end, on April 1, 2016 and April 23, 2015, respectively.

(20) Accumulated Other Comprehensive Income (Loss)

The following table presents the activity in accumulated other comprehensive income (loss) (AOCI), net of tax, for the following periods:



	Unrealized gains (losses) on
	Available for sale securities			Interest rate swap			Total
Balance at December 31, 2015	$	(222	)	$	111		$	(111	)
Other comprehensive income (losses) before reclassifications	1,721			(89		)	1,632
Amounts reclassified from AOCI	(37		)	(207		)	(244		)
Period change	1,684			(296		)	1,388
Balance at March 31, 2016	$	1,462		$	(185	)	$	1,277

F-42

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the Consolidated Statement of Income (Loss) for the following periods:



	Three Months Ended March 31,
Components of AOCI	2016			2015			Affected line item in Consolidated Statement of Income (Loss)
Unrealized gains (losses) on available for sale securities	$	57		$	15		Net realized and unrealized gains (losses)
Related tax (expense) benefit	(20		)	(5		)	Provision for income tax
Net of tax	$	37		$	10

Unrealized gains (losses) on interest rate swap	$	319		$	(281	)	Interest expense
Related tax (expense) benefit	(112		)	98			Provision for income tax
Net of tax	$	207		$	(183	)

(21) Stock Based Compensation

Equity Plans

2007 Manager Equity Plan

The Care Investment Trust Inc. Manager Equity Plan was adopted in June 2007 and will automatically expire on the 10th anniversary of the date it was adopted. As of March 31, 2016, 134,629 common shares remain available for future issuances. No shares have been issued since March 30, 2012 from this plan.

2013 Omnibus Incentive Plan

The Company adopted the Tiptree 2013 Omnibus Incentive Plan (2013 Equity Plan) on August 8, 2013 which permits the grant of stock units, stock, and stock options up to a maximum of 2,000,000 shares of Class A common stock. The general purpose of the 2013 Equity Plan is to attract, motivate and retain selected employees and directors for the Company, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2013 Equity Plan terminates automatically on the tenth anniversary of its adoption.

The table below summarizes changes to the issuances under the Company’s 2013 Equity Plan for the periods indicated:



	Number of shares available
	2013 Equity Plan
Available for issuance as of December 31, 2015	1,582,339
Shares and options issued and granted	(527,582	)
Available for issuance as of March 31, 2016	1,054,757

Restricted stock units and restricted stock

A holder of the restricted stock units (RSUs), pursuant to the terms of the restricted stock unit agreement governing the awards, have all of the rights of a stockholder, including the right to vote and receive distributions. Generally, the RSUs shall vest and become nonforfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period as if the award was, in-substance, multiple awards.

A holder of restricted stock, pursuant to the terms of the restricted stock award agreement governing the awards have all of the rights of a stockholder, including the right to vote and receive distributions. The restricted stock is subject to forfeiture as set forth in the agreement governing the award.

F-43

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The following table summarizes changes to the issuances of Class A common stock, restricted stock, and RSUs under the 2013 Equity Plan for the periods indicated:



	Number of shares issuable		Weighted Average Grant Date Fair Value
Unvested units as of December 31, 2015	128,323		$	7.68
Granted ⁽¹⁾	276,345		5.76
Vested ⁽¹⁾	(164,191	)	6.10
Unvested units as of March 31, 2016	240,477		$	6.55

(1) Includes 130,946 of immediately vested Class A common stock with a grant date fair value of $750 to settle compensation accrued during the year ended December 31, 2015.

The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Included in vested shares for 2016 are 646 shares surrendered to pay taxes on behalf of the employees with shares vesting. During the three months ended March 31, 2016, the Company granted 145,383 RSUs to employees of the Company, of which 111,759 vest over a period of three years that began in January 2016, and the remainder will vest over a period of two years beginning January 2016.

Stock Options

Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant; those option awards have a 10-year term and are subject the recipient’s continuous service, a market requirement, and generally vest over 5 years beginning on the 3^rd anniversary of the grant date. Options granted during the quarter contained a market requirement that at any time during the option term, the 20-day volume weighted average stock price must exceed the December 31, 2015 book value per share. The market requirement may be met any time before the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term. If the market requirement is not met, but the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period.

The fair value of each option grant was estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. Historical volatility was computed based on historical daily returns of the Company’s stock over a lookback period equal to 2.5 years from the grant date. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date. The current quarterly dividend of $0.025 was used to calculate a spot dividend yield as of the date of grant for use in the model.

The following table presents the assumptions used to estimate the fair values of the stock options granted for the following period:



Valuation Input	Three Months Ended March 31, 2016
	Range
	Low		High		Weighted Average
Historical Volatility	50.19	%	50.46	%	N/A
Risk-free Rate	1.93	%	2.28	%	N/A
Dividend Yield	1.70	%	1.76	%	N/A
Expected term (years)					6.5

F-44

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

The following table presents the Company's stock option activity for the current period:



	Options Outstanding	Weighted Average Exercise Price (in dollars per stock option)		Weighted Average Grant Date Value (in dollars per stock option)		Options Exercisable
Balance, December 31, 2015	—	$	—	$	—	—
Granted	251,237	5.69		2.62		—
Balance, March 31, 2016	251,237	$	5.69	$	2.62	—

Weighted average remaining contractual term at March 31, 2016 (in years)	9.8

Reliance Incentive Plan

In July 2015, Tiptree and Reliance established the Reliance Restricted Units Program under which Reliance is authorized to issue restricted stock units representing equity of Reliance to employees of Reliance. Two-thirds of the restricted stock units issued are subject to vesting based on the performance of Reliance and one-third vest annually in four equal installments, subject to continued employment. Following the fourth anniversary of issuance, vested restricted stock of Reliance may be exchanged at fair market value, at the option of the holder, for Tiptree Class A common stock. The Company has determined that the straight-line method will be used to recognize compensation expense for the time vesting Reliance restricted stock over the requisite service period of four years beginning in July 2015. The Company has determined that the graded-vesting method will be used to recognize compensation expense for the performance vesting Reliance restricted stock. Compensation expense will be recognized if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved. The Company must reassess the probability of satisfaction of the performance condition for the performance vesting Reliance restricted stock for each reporting period.

Stock-based Compensation Expense

The following table presents the total time-based and performance-based stock-based compensation expense and the related income tax benefit recognized on the Consolidated Statements of Income:



	Three Months Ended March 31,
	2016			2015
Payroll and employee commissions	$	353		$	69
Professional fees	35			38
Income tax benefit	(137		)	(38		)
Net stock-based compensation expense	$	251		$	69

Additional information on total non-vested stock-based compensation is as follows:



	At
	March 31, 2016
	Stock Options		Restricted Stock Awards and RSUs
Unrecognized compensation cost related to non-vested awards	$	619	$	1,406
Weighted - average recognition period (in years)	3.8		2.3

F-45

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

(22) Related Party Transactions

Tricadia Holdings, L.P.

On June 30, 2012, TAMCO, TFP and Tricadia Holdings LP (Tricadia) entered into a transition services agreement in connection with the internalization of the management of Tiptree (TSA). Pursuant to the TSA, Tricadia currently provides the Company with the services of its Executive Chairman as well as certain administrative and information technology. The TSA was assigned to the Company in connection with the Contribution Transactions. The Company pays Tricadia specified prices per service (detailed below) which totaled $114 and $333 for the three months ended March 31, 2016 and 2015, respectively.

The fees paid to Tricadia for services provided consisted of the following:



	Fees paid
	Three Months Ended March 31,
Service Provided	2016		2015
Personnel, including services of our Executive Chairman and personnel providing accounting services	$	25	$	113
Incentive compensation for providing services⁽¹⁾	—		93
Legal and compliance services	—		38
Human resources, information technology and other personnel	28		28
Office space	61		61

(1) Represents cash bonuses and grant date fair value of immediately vested stock granted to Tricadia or its employees providing services to Tiptree pursuant to the TSA.

Mariner Investment Group LLC

TFP and Back Office Services Group, Inc. (BOSG) entered into an administrative services agreement on June 12, 2007 (Administrative Services Agreement), which was assigned to the Operating Company on July 1, 2013 in connection with the Contribution Transactions, under which BOSG provides certain back office, administrative and accounting services to the Company including the services of the Company’s Chief Accounting Officer. BOSG is an affiliate of Mariner Investment Group (Mariner). Under the Administrative Services Agreement, the Company pays BOSG a quarterly fee of 0.025% of the Company’s Net Assets, defined as the Company’s total assets less total liabilities, including accrued income and expense, calculated in accordance with GAAP. This fee totaled $100 and $95 for the three months ended March 31, 2016 and 2015, respectively. The Administrative Services Agreement has successive one year terms but may be terminated by the Company or BOSG upon 60 days prior notice.

The amount of receivable and payables as of the balance sheet date was not material.

(23) Income Taxes

The total income tax benefit of $2,439 and benefit of $1,496 for the three months ended March 31, 2016 and 2015, respectively, is reflected as a component of income/(loss) from continuing operations.

For the three months ended March 31, 2016, the Company’s effective tax rate (“ETR”) on income from continuing operations was equal to (49.0)% which does not bear a customary relationship to statutory income tax rates. The ETR for the three months ended March 31, 2016 is negative and lower than the U.S. federal statutory income tax rate of 35.0% primarily due to $4,044 of the discrete tax benefits for the period, primarily related to the tax restructuring that resulted in a consolidated corporate tax group effective January 1, 2016. See Note 1—Organization.

The ETR on income from continuing operations for the three months ended March 31, 2016 before the tax restructuring was 32.3%. This 32.3% ETR is lower than the U.S. federal statutory income tax rate of 35.0% primarily due to (i) the release of valuation allowances on net operating losses earned by on certain subsidiaries, offset by (ii) valuation allowances on net operating losses incurred by other subsidiaries and (iii) the impact of certain gains and losses treated discretely for the period.

F-46

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

(24) Commitments and Contingencies

Contractual Obligations

The table below summarizes the Company’s contractual obligations by period that payments are due:



	As of
	March 31, 2016
	Less than one year		1-3 years		3-5 years		More than 5 years		Total
Operating lease obligations ⁽¹⁾	$	5,186	$	8,519	$	5,376	$	1,741	$	20,822
Total	$	5,186	$	8,519	$	5,376	$	1,741	$	20,822

⁽¹⁾Minimum rental obligations for Tiptree, Care, MFCA, Siena, Luxury, Reliance and Fortegra office leases. For the three months ended March 31, 2016 and 2015, rent expense for the Company’s office leases were $1,691 and $986, respectively.

In addition, Tiptree’s subsidiary Siena issues standby letters of credit for credit enhancements that are required by their borrower’s respective businesses. As of March 31, 2016 there was $400 outstanding relating to these letters of credit.

Litigation

Tiptree’s Fortegra subsidiary is a defendant in Mullins v. Southern Financial Life Insurance Co., which was filed on February 2, 2006, in the Pike Circuit Court, in the Commonwealth of Kentucky. A class was certified on June 25, 2010. At issue is the duration or term of coverage under certain policies. The action alleges violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud. The action seeks compensatory and punitive damages, attorney fees and interest. Plaintiffs filed a Motion for Sanctions on April 5, 2012 in connection with Fortegra's efforts to locate and gather certificates and other documents from Fortegra's agents. While the court did not award sanctions, it did order Fortegra to subpoena certain records from its agents. Although Fortegra appealed the order on numerous grounds, the Kentucky Supreme Court ultimately denied the appeal in April 2014. Consequently, the court has appointed a special master to facilitate the collection of certificates and other documents from Fortegra's agents. On January 29, 2015, the trial court issued an Order denying Fortegra’s motion to decertify the class, which Fortegra has appealed. On July 8, 2015, the Kentucky Court of Appeals dismissed Fortegra’s appeal, on the grounds that the court lacked subject-matter jurisdiction. The Company appealed, and the Supreme Court of Kentucky denied discretionary review. No trial or hearings are currently scheduled.

Tiptree considers such litigation customary in Fortegra’s lines of business. In management's opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of Tiptree. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot estimate a range of loss that is reasonably possible.

Tiptree and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although Tiptree’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, Tiptree does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on Tiptree’s financial position.

(25) Earnings Per Share

The Company calculates basic net income per Class A common share based on the weighted average number of Class A common shares outstanding (inclusive of vested restricted share units). The unvested restricted share units have the non-forfeitable right to participate in dividends declared and paid on the Company’s common stock on an as vested basis and are therefore considered a participating security. The Company calculates basic earnings per share using the “two-class” method, and for the three months ended March 31, 2015, the loss from continuing operations available to common stockholders was not allocated to the unvested restricted stock units as those holders do not have a contractual obligation to share in net losses.

F-47

TIPTREE FINANCIAL INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

(in thousands, except share data)

Diluted net income per Class A common shares for the period includes the effect of potential equity of Siena, Reliance, and Operating Company as well as potential Class A common stock, if dilutive. For the three months ended March 31, 2015, the assumed exercise of all dilutive instruments were anti-dilutive, and therefore, were not included in the diluted net income per Class A common share calculation.

The following table presents a reconciliation of basic and diluted net income per common share for the following periods:



	Three Months Ended March 31,
	2016		2015
Net income (loss) from continuing operations	$	7,414	$	(4,364	)
Less:
Net income (loss) from continuing operations attributable to non-controlling interests⁽¹⁾	1,859		(1,739		)
Net income from continuing operations allocated to participating securities	34		—
Net income (loss) from continuing operations available to Class A common shares	5,521		(2,625		)

Discontinued operations, net	—		2,345
Less:
Net income from discontinued operations attributable to non-controlling interests⁽¹⁾	—		699
Net income from discontinued operations available to Class A common shares	—		1,646

Net income (loss) available to Class A common shares - basic	$	5,521	$	(979	)

Basic:
Income (loss) from continuing operations	$	0.16	$	(0.08	)
Income from discontinued operations	—		0.05
Net income available to Class A common shares	0.16		(0.03		)

Diluted:
Income (loss) from continuing operations	0.16		(0.08		)
Income from discontinued operations	—		0.05
Net income (loss) available to Class A common shares	$	0.16	$	(0.03	)

Weighted average Class A common shares outstanding:
Basic	34,976,485		32,138,455
Diluted	35,084,505		32,138,455

(1) For the three months ended March 31, 2016, the total net income (loss) attributable to non-controlling interest was $1,859, comprised of $1,859 due to continuing operations and $0 attributable to discontinued operations. For the three months ended March 31, 2015, the total net income attributable to non-controlling interest was $(1,040), comprised of $(1,739) due to continuing operations and $699 attributable to discontinued operations.

(26) Subsequent Events

On May 5, 2016, the Company’s board of directors declared a quarterly cash dividend of $0.025 per share to Class A stockholders with a record date of May 23, 2016, and a payment date of May 30, 2016.

F-48

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to “Tiptree” or the “Company” mean Tiptree Financial Partners, L.P. (“TFP”) and Tiptree Operating Company, LLC (“Operating Company”) and their consolidated subsidiaries, together with the standalone net assets held by Tiptree Financial Inc. References to “Tiptree Financial” mean Tiptree Financial Inc. Tiptree Financial is publicly traded and owns approximately 81% of TFP which owns 100% of Operating Company.

OVERVIEW

Our Management’s Discussion and Analysis of Financial Conditions and Results of Operations is presented in this section as follows:


•	Overview


•	Results of Operations


•	Non-GAAP Financial Measures


•	Liquidity and Capital Resources


•	Critical Accounting Policies and Estimates


•	Recently Adopted and Issued Accounting Standards

The Company currently has five reporting segments: insurance and insurance services, specialty finance, real estate, asset management, and corporate and other. See Note 5—Operating Segment Data, in the notes to the accompanying consolidated financial statements for detailed information regarding our segments. Since different factors affect the financial condition and results of operation of each segment, the following discussion is presented on both a consolidated and segment basis.

Since we acquired Reliance on July 1, 2015, the results of Reliance are not included in our specialty finance results for the three months ended March 31, 2015. The results of PFG, which was sold on June 30, 2015, are presented in discontinued operations for the quarter ended March 31, 2015, and are not included in the comparable results for 2016.

The Company has identified internal control deficiencies that in the aggregate resulted in material weaknesses as of December 31, 2015 that have not been fully remediated and tested. See “Item 4. Controls and Procedures” below for more details.

On January 1, 2016, the Company completed a tax restructuring to create a consolidated group for U.S. federal tax purposes, which is expected to create tax efficiencies going forward.

Market Trends

Our results of operations are affected by a variety of factors including, but not limited to, general economic conditions, consumer confidence, wage growth, business confidence and investment, GDP growth, home affordability, housing starts, market volatility, interest rates and spreads, impact of regulatory environment, and aging U.S. population demographics. The following current trends and market conditions specifically impacted our businesses in the first quarter.

Our businesses are impacted in various ways by changing interest rates. All of our businesses have used asset based and other financing to finance their business activities, much of which is floating rate debt. Demand for our specialty finance lending products can be impacted by interest rates, primarily mortgage rates and ten year Treasury rates. Certain of our subsidiaries have also entered into interest rate swap agreements to fix all or a portion of their interest rate exposure, some of which have currently been designated as hedging relationships for accounting purposes. Interest rates have remained relatively flat year-over-year, dampening our volume in the mortgage segment as less refinancing activity occurred. Since December 2015, interest rates have declined resulting in additional expenses in our real estate segment for the fair value effect of interest and swaps not currently designated in hedging relationships. The impact on each segment is discussed in more detail in the individual segment results below.

Along with interest rates, home sales and home price appreciation impact our mortgage segment originations. According to Fannie Mae, home sales were up 3.8% year-over-year but flat on a sequential quarter basis. Mortgage originations were down 16% year-over-year, driven primarily by a drop in refinance volumes. Industry factors impacted our year-over-year mortgage originations comparison as discussed in our Specialty Finance segment below.

A significant portion of our assets, including our CLO subordinated notes and other principal investments, are held at fair value and changes in fair value of these assets are reported quarterly as unrealized gains and losses in revenues. The dealer price quotes that we receive for our CLO subordinated notes are a function of the trading levels for similar securities and the results of cash flow analysis that the dealers, buyers and sellers, perform to determine price along with seller-specific liquidity issues. Recently, leveraged loan price volatility has been driven primarily by default expectations in the energy, metals and mining sectors. While

we saw credit spreads stabilize toward the end of the first quarter, we expect volatility in the prices of leveraged loans and the valuation of CLO subordinated notes to continue throughout 2016. The ability to issue new CLOs is dependent, in part, on the amount of excess interest earned on a new CLO’s investments over interest payable on its debt obligations. If the spread is not attractive to potential CLO equity investors, we may not be able to sponsor the issuance of new CLOs. During the fourth quarter of 2015 and first quarter of 2016, there was a dislocation in the credit markets that significantly impeded CLO formation and created downward pressure of CLO manager fees for new CLOs. Continued dislocation in credit markets could impede our ability to launch new CLOs.

Summary Consolidated Statements of Income



($ in thousands)	Three months ended March 31,
	2016			2015
Total revenues	$	131,806		$	89,063
Total expenses	127,936			94,612
Net income (loss) attributable to consolidated CLOs	1,105			(311		)
Income (loss) before taxes from continuing operations	4,975			(5,860		)
Less: provision (benefit) for income taxes	(2,439		)	(1,496		)
Discontinued operations, net	—			2,345
Net income (loss) before non-controlling interests	7,414			(2,019		)
Less: net income attributable to non-controlling interests	1,859			(1,040		)
Net income (loss) available to common stockholders	$	5,555		$	(979	)

Summary Adjusted EBITDA⁽¹⁾



($ in thousands)	Three months ended March 31,
	2016		2015
Adjusted EBITDA from continuing operations of the Company	$	15,323	$	4,758
Adjusted EBITDA from discontinued operations of the Company	$	—	$	8,198
Total Adjusted EBITDA of the Company	$	15,323	$	12,956

(1)For further information relating to the Company’s Adjusted EBITDA, including a reconciliation to GAAP net income, see“—Non-GAAP Financial Measures” below.

Key Drivers of Results of Operations

The Company had net income before taxes from continuing operations of $5.0 million for the three months ended March 31, 2016, which was an increase of $10.8 million from the three months ended March 31, 2015. The key drivers of pretax results from continuing operations were improved profitability from our insurance and insurance services segment revenues and investment income, increased rental income in our senior housing real estate operations, and unrealized gains on principal investments partially offset by increased expenses in specialty finance and higher corporate expenses associated with our effort to improve our controls and financial reporting infrastructure.

A discussion of the changes in revenues, expenses and net income is presented below and in more detail in our segment analysis.

Revenues

For the three months ended March 31, 2016, the Company reported revenues of $131.8 million, an increase of $42.7 million from the three months ended March 31, 2015. The primary drivers of the increase in revenues were period-over-period improvements in earned premiums, service and administrative fees and investment income in our insurance and insurance services segment, the acquisition of Reliance in specialty finance and of senior housing properties at Care, and improvement in the performance of our principal investments.

Expenses

For the three months ended March 31, 2016, the Company had expenses of $127.9 million, an increase of $33.3 million from the three months ended March 31, 2015. The primary drivers of the increase in expenses were commission expenses in insurance and insurance services as a result of the growth in written premiums, higher payroll and commission expense primarily related to the addition of Reliance volume and an increase in headcount in specialty finance, increased operating expenses and depreciation and amortization associated with our increased investments in our real estate segment and increases in corporate payroll and professional expenses to improve our reporting and controls infrastructure.

Adjusted EBITDA from Continuing Operations

For the three months ended March 31, 2016, the Company reported Adjusted EBITDA from continuing operations of $15.3 million, an increase of $10.6 million from the three months ended March 31, 2015. The key drivers of the change in Adjusted EBITDA were the same as those which impacted our pretax income from continuing operations. The smaller increase versus that reported for pretax income from continuing operations was primarily driven by the elimination of period-over-period changes attributable to increased depreciation and amortization at our real estate segment and the purchase accounting impacts at our insurance and insurance services segment.

Total Adjusted EBITDA

The Company reported total Adjusted EBITDA for the three months ended March 31, 2016 of $15.3 million, an increase of $2.4 million from the three months ended March 31, 2015. The primary drivers of the increase were the same factors that impacted Adjusted EBITDA from continuing operations, partially offset by the loss of income from discontinued operations from 2015.

Income Before Non-Controlling Interests

The Company reported net income before non-controlling interests of $7.4 million in the three months ended March 31, 2016, an increase of $9.4 million from the three months ended March 31, 2015. The primary drivers of the year-over-year difference in net income before non-controlling interests were the same factors which impacted the year-over-year change from pre-tax income from continuing operations, plus a current period tax benefit of $2.4 million which was driven by discrete tax benefits of $4.0 million primarily from the tax restructuring effective January 1, 2016.

Net Income/(Loss) Available to Class A Common Stockholders

The Company reported net income to common shareholders of $5.6 million in the three months ended March 31, 2016, an increase of $6.5 million from the three months ended March 31, 2015. The key drivers of net income were consistent with those that contributed to the differences in income before non-controlling interests, partially benefiting from the exchange of non-controlling interests for Tiptree Financial’s Class A shares during the third quarter of 2015. As of March 31, 2016, the Class A common stockholders were entitled, directly or indirectly, to approximately 81% of the net income of the Company, compared to approximately 77% as of March 31, 2015. For more information on the Company’s structure, see Note 1—Organization, in the accompanying consolidated financial statements.

RESULTS OF OPERATIONS

Segment Results - Three Months Ended March 31, 2016 and March 31, 2015



($ in thousands)	Three Months Ended March 31, 2016 and March 31, 2015
	Insurance and insurance services					Specialty finance					Real estate						Asset management				Corporate and other						Totals
	Three Months Ended March 31,					Three Months Ended March 31,					Three Months Ended March 31,						Three Months Ended March 31,				Three Months Ended March 31,						Three Months Ended March 31,
	2016		2015			2016			2015		2016			2015			2016		2015		2016			2015			2016			2015
Net realized and unrealized gains (losses)	$	2,108	$	(5	)	$	(96	)	$	715	$	—		$	(485	)	$	—	$	—	$	5,884		$	(323	)	$	7,896		$	(98	)
Net realized and unrealized (losses) on mortgage pipeline and associated hedging instruments	—		—			(1,719		)	—		—			—			—		—		—			—			(1,719		)	—
Interest income	1,312		1,230			2,356			1,353		20			19			—		—		3,997			281			7,685			2,883
Service and administrative fees	30,310		21,927			—			—		—			—			—		—		—			—			30,310			21,927
Ceding commissions	10,703		9,937			—			—		—			—			—		—		—			—			10,703			9,937
Earned premiums, net	44,615		37,353			—			—		—			—			—		—		—			—			44,615			37,353
Gain on sale of loans held for sale, net	—		—			13,515			2,731		—			—			—		—		—			—			13,515			2,731
Loan fee income	—		—			2,334			1,399		—			—			—		—		—			—			2,334			1,399
Rental revenue	—		—			—			17		12,724			9,352			—		—		—			—			12,724			9,369
Other income	264		1,937			176			40		1,146			538			2,006		1,047		151			—			3,743			3,562
Total revenues	89,312		72,379			16,566			6,255		13,890			9,424			2,006		1,047		10,032			(42		)	131,806			89,063

Interest expense	1,155		1,739			1,185			511		1,854			1,330			—		—		2,286			1,549			6,480			5,129
Payroll and employee commissions	9,587		10,405			11,468			3,724		5,638			3,923			1,241		848		2,674			1,441			30,608			20,341
Commission expense	33,038		16,528			—			—		—			—			—		—		—			—			33,038			16,528
Member benefit claims	5,750		7,579			—			—		—			—			—		—		—			—			5,750			7,579
Net losses and loss adjustment expense	17,948		12,450			—			—		—			—			—		—		—			—			17,948			12,450
Depreciation and amortization	3,983		11,954			202			122		4,130			3,388			—		—		62			—			8,377			15,464
Other expenses	8,854		7,698			4,694			1,463		6,127			4,964			105		162		5,955			2,834			25,735			17,121
Total expenses	80,315		68,353			17,549			5,820		17,749			13,605			1,346		1,010		10,977			5,824			127,936			94,612
Net income attributable to consolidated CLOs	—		—			—			—		—			—			1,000		1,837		105			(2,148		)	1,105			(311		)
Pre-tax income (loss)	$	8,997	$	4,026		$	(983	)	$	435	$	(3,859	)	$	(4,181	)	$	1,660	$	1,874	$	(840	)	$	(8,014	)	$	4,975		$	(5,860	)

Summary segment EBITDA and Adjusted EBITDA for continuing operations for the three months ended March 31, 2016 and March 31, 2015⁽¹⁾



($ in thousands)	Three Months Ended March 31, 2016 and March 31, 2015
	Insurance and insurance services				Specialty finance					Real estate				Asset management				Corporate and other					Totals
	Three Months Ended March 31,				Three Months Ended March 31,					Three Months Ended March 31,				Three Months Ended March 31,				Three Months Ended March 31,					Three Months Ended March 31,
	2016		2015		2016			2015		2016		2015		2016		2015		2016		2015			2016		2015
Segment EBITDA	$	14,135	$	17,719	$	404		$	1,068	$	2,125	$	537	$	1,660	$	1,874	$	1,508	$	(6,465	)	$	19,832	$	14,733

Segment Adjusted EBITDA	$	12,006	$	8,236	$	(730	)	$	557	$	2,070	$	556	$	1,660	$	1,874	$	317	$	(6,465	)	$	15,323	$	4,758

(1)For further information relating to the Company’s Adjusted EBITDA, including a reconciliation to GAAP net income, see“—Non-GAAP Financial Measures” below.

Segment Assets as of - March 31, 2016 and December 31, 2015



($ in thousands)	Insurance and insurance services				Specialty finance				Real estate				Asset management				Corporate and other				Total
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2016		2015		2016		2015		2016		2015		2016		2015		2016		2015		2016		2015
Segment assets	$	981,412	$	929,054	$	186,260	$	208,201	$	278,634	$	230,546	$	1,966	$	1,820	$	429,219	$	396,537	$	1,877,491	$	1,766,158
Assets of consolidated CLOs																					722,418		728,812
Total assets																					$	2,599,909	$	2,494,970

Insurance and Insurance Services segment - operating results for the three months ended March 31, 2016 and March 31, 2015

The Company’s insurance and insurance services segment is comprised of its wholly-owned Fortegra subsidiary, which was acquired in December 2014. The acquisition of Fortegra resulted in purchase price accounting adjustments in our insurance and insurance services segment giving effect to the push-down accounting treatment of the acquisition. These adjustments include setting deferred cost assets to a fair value of zero, modifying deferred revenue liabilities to their respective fair values, and recording a substantial intangible asset representing the value of the business acquired (“VOBA”). The application of push-down accounting creates a modest impact to net income, but significantly impacts individual assets, liabilities, revenues, and expenses.

The following discussion of our insurance and insurance services segment also presents operating results and net revenues by product mix information as adjusted to eliminate the effects of purchase price accounting (“As Adjusted”). These As Adjusted results are a non-GAAP financial measure. Due to acquisition accounting, the line items through which revenue and expenses related to acquired contracts are recognized differ from those related to newly originated contracts. As a result, eliminating the effects of purchase accounting provides for better period-over-period comparison of the underlying operating performance of the business and aligns more closely with the basis upon which management performance is measured. The Company believes that presenting this As Adjusted information provides useful information to investors regarding our insurance and insurance services segment operations period-over-period. In addition, management of the Company evaluates the operations of our insurance and insurance services segment using this As Adjusted information including for compensation of management of the Fortegra segment.

The following table presents our insurance and insurance services segment results on a GAAP basis and an As Adjusted basis (a non GAAP measure which excludes the effects of purchase price accounting).



	Three months ended March 31, 2016								Three months ended March 31, 2015
($ in thousands)	GAAP		Adjustments				Non-GAAP As Adjusted		GAAP		Adjustments				Non-GAAP As Adjusted
Revenues:
Earned premiums	$	44,615	$	—			$	44,615	$	37,353	$	—			$	37,353
Service and administrative fees	30,310		2,196			₍₂₎	32,506		21,927		6,150			₍₂₎	28,077
Ceding commissions	10,703		191			₍₃₎	10,894		9,937		1,602			₍₃₎	11,539
Interest income ⁽¹⁾	3,420		—				3,420		1,225		—				1,225
Other Income	264		—				264		1,937		—				1,937
Total revenues	89,312		2,387				91,699		72,379		7,752				80,131
Less:
Commission expense	33,038		4,263			₍₄₎	37,301		16,528		16,854			₍₄₎	33,382
Member benefit claims	5,750		—				5,750		7,579		—				7,579
Net losses and loss adjustment expenses	17,948		—				17,948		12,450		—				12,450
Net revenues	32,576		(1,876		)		30,700		35,822		(9,102		)		26,720
Expenses:
Interest expense	1,155		—				1,155		1,739		—				1,739
Payroll and employee commissions	9,587		—				9,587		10,405		—				10,405
Depreciation and amortization expenses	3,983		(1,487		)	₍₅₎	2,496		11,954		(9,389		)	₍₅₎	2,565
Other expenses	8,854		153			₍₆₎	9,007		7,698		816			₍₆₎	8,514
Loss on note receivable	—		—				—		—		—				—



	Three months ended March 31, 2016							Three months ended March 31, 2015
($ in thousands)	GAAP		Adjustments			Non-GAAP As Adjusted		GAAP		Adjustments			Non-GAAP As Adjusted
Total operating expenses	23,579		(1,334		)	22,245		31,796		(8,573		)	23,223
Income before taxes from continuing operations	$	8,997	$	(542	)	$	8,455	$	4,026	$	(529	)	$	3,497

_________________________________

(1) Includes net realized and unrealized gains and (losses) on investments.

(2) Represents service fee revenues that would have been recognized had purchase accounting effects not been recorded. Deferred service fee liabilities at the acquisition date were reduced to reflect the purchase accounting fair value.

(3) Represents ceding commission revenues that would have been recognized had purchase accounting effects not been recorded. Deferred ceding commissions liabilities at the acquisition date were reduced to reflect the purchase accounting fair value.

(4) Represents additional commissions expense that would have been recorded without purchase accounting; the values of deferred commission assets were eliminated in purchase accounting.

(5) Represents the removal of net additional depreciation and amortization expense that would not have been recorded without purchase accounting; fixed assets and amortizing intangible assets were adjusted in purchase accounting based on fair value analyses.

(6) Represents additional premium tax and other acquisition expenses that would have been recorded without purchase accounting; values of deferred acquisition costs were eliminated in purchase accounting.

Results

Insurance and insurance services segment pre-tax income was $9.0 million in the three months ended March 31, 2016, an increase of $5.0 million or 123.5% over the prior year period operating results. The primary drivers of the improvement in period-over-period results was a reduction in total operating expenses of $8.2 million, primarily in depreciation and amortization expenses associated with the VOBA, partially offset by a reductions in net revenues of $3.2 million driven by competition in the warranty segment.

As Adjusted pre-tax income was $8.5 million for the three months ended March 31, 2016, an increase of $5.0 million or 141.8%. The primary drivers of the period-over-period improvement include an increase in net revenues of $4.0 million driven by improvements in credit protection investment income, earned premiums and service fees. As Adjusted operating expenses were down $1.0 million as a result of cost actions taken throughout 2015 to reduce headcount and professional fees.

Revenues

Insurance and insurance services segment revenues are generated by the sale of the following products and services: credit protection, warranty, specialty products and other. Credit protection products include the following types of insurance: credit life, credit disability, credit property, involuntary unemployment, and accidental death and dismemberment. Warranty products include cell phone warranty, furniture and appliance service contracts and auto service contracts. Specialty products are primarily non-standard auto rebate insurance such as tire/wheel or windshield coverage. Services and other revenues principally represent fees for insurance sales and business process outsourcing services, and interest for premium and mobile device plan financing offset by reductions in fee income, ceding commissions, and commissions expense due to recording the purchase accounting effect of VOBA related to insurance contracts. The net revenue impact of VOBA, which is additive to net revenue, is substantially offset by increased amortization expense recorded in depreciation and amortization expense.

For insurance and insurance services, the main components of revenue are service and administrative fees, ceding commissions and earned premiums, net. Total revenues were $89.3 million for the three months ended March 31, 2016, up $16.9 million, or 23.4% over the prior year period. The increase was primarily driven by an increase in earned premiums of $7.3 million, or 19.4%, and increase of $8.4 million, or 38.2%, in service and administrative fees, and an increase of $2.2 million in investment income, slightly offset by a decrease of $5.4 million in period-over-period impacts of purchase accounting.

The following table presents As Adjusted product revenue mix within the insurance and insurance services segment for the three months ended March 31, 2016 and March 31, 2015. We use As Adjusted net revenues as another means of understanding product contributions to our results and provides a comparison of period-over-period risk retained by the Company. Net revenues also adds supplemental information for investors to understand profitability of various products after reinsurance, claims and losses.The following table should be read in conjunction with the table above, presenting As Adjusted results reconciled to GAAP results.



($ in thousands)	Credit Protection				Warranty				Specialty Products				Services and Other⁽¹⁾						Insurance Total
	Three Months Ended March 31,				Three Months Ended March 31,				Three Months Ended March 31,				Three Months Ended March 31,						Three Months Ended March 31,
	2016		2015		2016		2015		2016		2015		2016			2015			2016		2015
Income:
Earned premiums	$	29,294	$	27,700	$	9,149	$	6,939	$	6,172	$	2,714	$	—		$	—		$	44,615	$	37,353
Service and administrative fees	11,438		5,480		15,678		19,011		3,147		896		2,243			2,690			32,506		28,077
Ceding commissions	10,893		11,529		1		10		—		—		—			—			10,894		11,539
Interest income⁽²⁾	2,955		707		—		—		—		—		465			518			3,420		1,225
Other income	147		134		93		1,777		30		26		(6		)	—			264		1,937
Total revenue	54,727		45,550		24,921		27,737		9,349		3,636		2,702			3,208			91,699		80,131

Income Adjustments:
Net losses and member benefit claims	7,228		6,950		10,510		11,114		5,953		1,909		7			56			23,698		20,029
Commissions	28,559		24,162		7,628		8,825		1,026		439		88			(44		)	37,301		33,382
Total income adjustments	35,787		31,112		18,138		19,939		6,979		2,348		95			12			60,999		53,411

As Adjusted net revenues	$	18,940	$	14,438	$	6,783	$	7,798	$	2,370	$	1,288	$	2,607		$	3,196		$	30,700	$	26,720

(1) Services and Other include Consecta, Financial Services, Insurance Services, ImageWorks, VOBA and Other
(2) Includes net realized and unrealized gains (losses) on investments

As Adjusted net revenues is shown as total revenue less commissions paid to brokers, member benefit claims and net loss and loss adjustment expenses adjusted to eliminate the effects of purchase price accounting. We use As Adjusted net revenues as another means of understanding product contributions to our results. Period-over-period comparisons of total revenues are often impacted by our clients’ choice as to whether to retain risk, the impact of which is visible in this metric.

As Adjusted net revenues for the three months ended March 31, 2016 were $30.7 million, up $4.0 million or 14.9% from the comparable 2015 period. The increase was primarily driven by improvements in the credit protection and specialty products, as reduced claim activity and investment income drove the period-over-period favorability. Those improvements were dampened slightly by a reduction in period-over-period As Adjusted net revenues for cell phone warranty contracts as competitive pressures remain.

Credit protection As Adjusted net revenues for the three months ended March 31, 2016 were $18.9 million, higher than the comparable 2015 period operating results by $4.5 million or 31.2%. Warranty products, including cell phone protection, were $6.8 million for the three months ended March 31, 2016, down $1.0 million or 13.0% from the comparable 2015 period operating results. Specialty products As Adjusted net revenue for the three months ended March 31, 2016 were $2.4 million, up 84.0% from the prior year period operating results. Credit protection products and specialty products continue to provide opportunities for growth through a combination of expanded product offerings, new clients and geographic expansion in the latter case.

Net revenues are net of commission paid to brokers. Commission expense is incurred on most product lines, most of which are retrospective commissions paid to distributors and retailers selling our products, including credit insurance policies, motor club memberships, mobile device protection and warranty service contracts. Credit insurance commission rates are, in many cases, set by state regulators and are also impacted by market conditions and retention levels. Total commission expense of $33.0 million for the three months ended March 31, 2016, was driven by the increase in policies issued in the credit life and specialty auto warranty and insurance products. For the three months ended March 31, 2016, commission expense adjusted for the impact of purchase accounting was $37.3 million, up $3.9 million from the prior year period as a result of increased written premiums and policies issued.

There are two types of income reductions for claims payments under insurance and warranty service contracts: member benefit claims and net losses and loss adjustment expenses. Member benefit claims represent the costs of services and replacement devices incurred in car club and warranty protection service contracts. Net losses and loss adjustment expenses represent actual insurance claims paid, changes in unpaid claim reserves, net of amounts ceded, and the costs of administering claims for credit life and other insurance lines, such as non-standard auto. Incurred claims are impacted by loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Factors affecting loss frequency and loss severity include changes in claims reporting patterns, claims settlement patterns, judicial decisions, economic conditions, morbidity patterns and the attitudes of claimants towards settlements.

Member benefits claims and net losses and loss adjustment expenses, combined were $23.7 million for the three months ended March 31, 2016, with net losses and loss adjustments up $5.5 million period-over-period, partially offset by a reduction in member benefit claims of $1.8 million. The increase in net losses over the prior year period was a function of growth in earned premiums in non-standard auto and motor club and credit life, partially offset by lower claims in mobile devices.

Expenses

Operating expenses in the insurance and insurance services segment are composed of payroll and employee commissions, interest expense, professional fees, depreciation and amortization expenses and other expenses. Segment operating expenses in the three months ended March 31, 2016 were $23.6 million, a decrease of $8.2 million or 25.8% as compared to the previous year period costs. The primary driver of the period-over-period decrease was attributable to lower depreciation and amortization expense as a result of the decline in purchase accounting impact from the amortization of the fair value attributed to the insurance policies and contracts acquired, which was $1.5 million for the three months ended March 31, 2016 versus $9.4 million in the comparable 2015 period. As adjusted operating expenses of $22.2 million were down period-over-period as a result of the cost reduction efforts described above.

Payroll and employee commissions expense are the largest component of expenses and are composed of base salaries, employee commissions and accruals for employee paid time off and bonuses. Payroll and employee commission expense was $9.6 million for the three months ended March 31, 2016, down from the prior year period by $0.8 million as a result of cost reduction efforts.

Professional fees and other expenses were $8.9 million for the three months ended March 31, 2016, up $1.2 million period-over-period, as a result of an increase in premium taxes on earned premiums for credit and specialty products. Other expenses are primarily comprised of acquisition, advertising and event costs, bank and credit card processing fees, technology expenses, filing and licensing fees, premium taxes and office rent costs.

Depreciation and amortization expense of $4.0 million for the three months ended March 31, 2016 related primarily to the amortization of the intangible assets acquired, as mentioned above. The most significant of these expenses is the amortization of the fair value attributed to the insurance policies and contracts acquired, which had a value of $36.5 million as of the acquisition date and has a steep amortization curve. Amortization of this intangible asset was approximately $1.5 million for the three months ended March 31, 2016, as a significant portion was amortized in 2015.

For information relating to Fortegra’s debt and interest expenses, please refer to Note 17—Debt, net, of the accompanying financial statements.

Net Written Premiums

The following table presents product gross and net written premiums for the insurance and insurance services segment for the three months ended March 31, 2016 and March 31, 2015. Written premiums represent the amount of premiums customers are required to pay for insurance policies. This is different from premium earned, which is the amount of premiums earned by providing insurance against various risks.



($ in thousands)	Credit Protection						Warranty						Specialty Products						Services & Other					Insurance Total
	Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,					Three Months Ended March 31,
	2016			2015			2016			2015			2016			2015			2016			2015		2016			2015
Gross written premiums	$	107,182		$	112,204		$	12,045		$	9,157		$	63,264		$	22,901		$	9		$	—	$	182,500		$	144,262
Ceded written premiums	(79,373		)	(90,772		)	(2,144		)	(1,233		)	(53,583		)	(20,314		)	(9		)	—		(135,109		)	(112,319		)
Net written premiums	$	27,809		$	21,432		$	9,901		$	7,924		$	9,681		$	2,587		$	—		$	—	$	47,391		$	31,943

Total net premiums written for the three months ended March 31, 2016 were $47.4 million, up $15.4 million or 48.4% from the same period year-over-year. Credit protection net premiums written for the three months ended March 31, 2016 were $27.8 million, higher than the previous year period operating results by $6.4 million. Warranty products were $9.9 million, up $2.0 million from the prior year period operating results. Specialty products net written premiums for the three months ended March 31, 2016 were $9.7 million, up $7.1 million from the prior year period operating results.

Adjusted EBITDA

Insurance and insurance services segment adjusted EBITDA was $12.0 million for the three months ended March 31, 2016 an increase of $3.8 million for the same period year-over-year. The key drivers of Adjusted EBITDA growth was higher credit insurance and specialty products revenues and flat operating expenses, adjusted for the impact of purchase accounting effects, partially offset by lower warranty revenues driven by competition in the cell phone warranty business. See “Non-GAAP Financial Measures” below for a reconciliation to GAAP net income.

Specialty Finance segment - operating results for the three months ended March 31, 2016 and March 31, 2015



											Total
	Siena					Mortgage Business					Specialty Finance
	Three Months Ended March 31,					Three Months Ended March 31,					Three Months Ended March 31,
($ in thousands)	2016			2015		2016			2015		2016			2015
Net realized and unrealized (losses) gains	$	(96	)	$	—	$	—		$	715	$	(96	)	$	715
Net realized and unrealized gains on mortgage pipeline and associated hedging instruments	—			—		(1,719		)	—		(1,719		)	—
Interest income	1,445			1,026		911			327		2,356			1,353
Gain on sale of loans held for sale, net	—			—		13,515			2,731		13,515			2,731
Loan fee income	903			837		1,431			562		2,334			1,399
Rental revenue	—					—			17		—			17
Other income	—			40		176			—		176			40
Total revenue	2,252			1,903		14,314			4,352		16,566			6,255
	`
Interest expense	332			232		853			279		1,185			511
Payroll and employee commissions	1,171			902		10,297			2,822		11,468			3,724
Depreciation and amortization	16			66		186			56		202			122
Other expenses	467			371		4,227			1,092		4,694			1,463
Total expense	1,986			1,571		15,563			4,249		17,549			5,820
Pre-tax income (loss)	$	266		$	332	$	(1,249	)	$	103	$	(983	)	$	435

The specialty finance segment is comprised of Siena, a commercial finance company, which is 62% owned by the Company and our mortgage origination business, which is conducted through two entities, Reliance, a mortgage originator, which is 100% owned as of July 1, 2015 and Luxury, a mortgage originator which is 67.5% owned by the Company.

Results

Specialty finance segment pre-tax loss was $1.0 million for three months ended March 31, 2016, compared with pre-tax income of $0.4 million for the same period in 2015. The key driver of the decrease was higher expense growth relative to volume growth, caused by investment in marketing expenses and costs of additional sales personnel. Growth in volume tends to lag the hiring of new loan officers as the full ramp up of productivity takes four to six months.

Segment revenues were $16.6 million for the three months ended March 31, 2016, compared with $6.3 million for the comparable 2015 period, an increase of $10.3 million or 164.8%. Segment expenses were $17.5 million in the three months ended March 31, 2016, compared with $5.8 million in the comparable 2015 period, an increase of $11.7 million or 201.5%. Higher expenses more than offset higher revenues, resulting in declining profitability year-over-year. Primarily drivers include unfavorable market conditions which dampened organic origination growth excluding the impact of Reliance acquisition, increasing payroll expenses as the businesses expand headcount to produce future originations, and increased professional expenses for audit and internal control over financial reporting.

Siena

Siena’s pre-tax net income was $266 thousand for the three months ended March 31, 2016, compared with pre-tax net income of $332 thousand for the comparable 2015 period. The decline in Siena’s results was driven by higher payroll and operating expenses, coupled with lower one time fee income, only partially offset by increased loan originations and higher utilization rates of facilities by borrowers.

Revenues

Siena’s revenues totaled $2.3 million for the three months ended March 31, 2016, compared with $1.9 million for the same period in 2015, an increase of $0.3 million or 18.3%. Siena had average earning assets of $57.0 million for the three months ended March 31, 2016, compared with $45.8 million for the comparable 2015 period, an increase of 24.5%. The increase in revenue was primarily driven by the increase in lending volume and interest margins, partially offset by lower one time fees and administrative fees.

Expenses

Siena’s expenses were $2.0 million in the three months ended March 31, 2016, compared with $1.6 million in the comparable 2015 period, an increase of $0.4 million or 26.4%. Siena’s expenses are comprised primarily of payroll and employee commissions, interest and other expenses. Growth in expenses was at a quicker pace than the increase in lending volume and primarily related to higher payroll costs as the Company added headcount to support current and future volume growth and improved control infrastructure which dampened pre-tax income.

Mortgage Business

The mortgage business’s pre-tax loss was $1.2 million for the three months ended March 31, 2016, compared with pre-tax income of $0.1 million for the same period in 2015, a decrease of $1.3 million. The decrease was primarily driven by increased expenses in the mortgage businesses which was only partially offset by the increased origination volume.

Mortgage origination volume improved 84.5% from $180.4 million for the three months ended March 31, 2015 to $332.8 million for the current year period while realizing 178.7 basis points improvement in revenue margins year-over-year. This was primarily a result of the inclusion of Reliance’s volume and increase in product mix towards higher margin Federal Housing Administration and the U.S. Department of Veterans Affairs (“FHA/VA”) and agency products.

Increased revenues were more than offset by higher expenses, which increased from $4.2 million for the three months ended March 31, 2015 to $15.6 million the three months ended March 31, 2016, primarily driven by non-commission based payroll expenses, for sales personnel and new loan officers and increased marketing expenses to support the expected volume growth from new loan officers. Increases in general expenses for audit, consulting, tax and licensing expenses as well as longer timelines to close new volume as a result of the implementation of new regulations were also factors in the increased expenses. As mentioned earlier, the increase in productivity for new sales staff to get to tenured levels is typically four to six months, resulting in a lag in volume.

Selected mortgage margin and product mix analysis for the three months ended March 31, 2016 and March 31, 2015

The table below presents the funded volume, brokered volume and sold volume of mortgage loans originated in our mortgage origination businesses as well as the mortgage margin, as measured in basis points, and product mix of such mortgage loans for the three months ended March 31, 2016 and 2015, respectively. “Volume” refers to the unpaid principal balance of the mortgage loan. The table is being provided to assist investors’ understanding of the key drivers of the quarter-over-quarter change in revenues and expenses.



($ in thousands)	Three Months Ended March 31,
	2016			2015
Funded volume	$	317,808		$	161,633
Brokered volume	14,999			18,748
Total origination volume	$	332,807		$	180,381

Sold volume	$	348,559		$	141,560
(basis points of total origination volume)
Net revenue	404.5			225.8
Expenses
Commissions	94.6			72.8
Non commission payroll expenses	214.8			86.0
Total other expense	132.6			61.3
Total expenses	442.0			220.1
Pretax income (loss)	(37.5		)	5.7
Headcount	502			121			⁽¹⁾
Percent of volume
Agency	35.1		%	21.7		%
FHA/VA	32.8			4.2
Jumbo/other	26.0			50.5
Total retail	93.9			76.4
Wholesale	1.6			13.2
Brokered	4.5			10.4
Total	100		%	100		%

(1) For comparative purposes, total headcount of our mortgage businesses within the specialty finance segment, including Reliance, in the first quarter of 2015 was 420 persons.

Revenues

Total origination volume increased from $180.4 million in the three months ended March 31, 2015 to $332.8 million in the three months ended March 31, 2016. Funded volume increased at a faster pace than brokered volume primarily due to the fact that the substantial majority of Reliance’s volume is in this category. Total sold volume in the three months ended March 31, 2016 was $348.6 million, up from $141.6 million in the comparable 2015 period. The primary driver of the increase in volume was the acquisition of Reliance.

Net revenue margins also improved in the three months ended March 31, 2016. The primary driver of the improved margins was the higher mix of FHA/VA and agency volumes. Agency and FHA/VA originations tend to have higher net revenue margin than jumbo and brokered volumes.

Mortgage business revenues for the three months ended March 31, 2016 were $14.3 million compared with $4.4 million for the three months ended March 31, 2015, an increase of $10.0 million or 228.9%. The revenue improvement was driven primarily by the inclusion of Reliance’s originations, which resulted in both higher funding volume and improved margins. Revenues earned by the mortgage business are comprised of gain on sale on mortgages originated and sold to investors, gains and losses on the mortgage pipeline of interest rate lock commitments and mortgage loans held for sale and the associated hedges, net interest income on mortgages held for sale, and fees associated with the mortgage origination business. Loan fees are primarily comprised loan application fees, appraisal fees, document preparation fees, broker fees earned and loan underwriting fees.

Expenses

Mortgage business expenses, for the three months ended March 31, 2016 were $15.6 million compared with $4.2 million for the comparable period in 2015, an increase of $11.3 million or 266.3%. Expenses are composed of payroll and employee commissions, professional fees and other expenses. The primary driver of higher expenses was a combination of the inclusion of Reliance, and higher payroll and other employee expenses plus higher marketing costs to support the higher number of sales personnel. In the first quarter, growth in expenses outpaced growth in funded volumes as the businesses increased headcount. On a comparable basis, including Reliance headcount from March 31, 2015, headcount increased by 19.5% which was a driver of increased expenses. Typically there is a lag in increased originations as a result of the time for new loan officers to improve productivity which impacted the higher growth in expenses relative to revenue. In addition, volume was impacted by unfavorable industry conditions particularly for refinance volumes. Additionally, slight increases in general expenses for audit, consulting, tax and licensing expenses were incurred.

Adjusted EBITDA

Specialty finance segment Adjusted EBITDA was a loss of $0.7 million for the three months ended March 31, 2016 compared to income of $0.6 million in the prior year period. The decline in Adjusted EBITDA was driven by the increased expenses, which more than offset increases in volume and revenue from the Reliance acquisition. See “Non-GAAP Financial Measures” below for a reconciliation to GAAP net income.

Real Estate segment - operating results for the three months ended March 31, 2016 and March 31, 2015



	Real Estate segment
	Three months ended March 31,
($ in thousands)	2016			2015
Net realized and unrealized gains (losses)	$	—		$	(485	)
Interest income	20			19
Rental revenue	12,724			9,352
Other income	1,146			538
Total revenue	13,890			9,424

Interest expense	1,854			1,330
Payroll and employee commissions	5,638			3,923
Depreciation and amortization	4,130			3,388
Other expenses	6,127			4,964
Total expense	17,749			13,605
Pre-tax income (loss)	$	(3,859	)	$	(4,181	)

The Company’s real estate segment consists of its wholly-owned Care subsidiary, which primarily acquires and operates seniors housing properties. On January 20, 2016, affiliates of Care and affiliates of Heritage acquired a senior housing community for $39.1 million which is managed by an affiliate of Heritage under a management contract. On March 1, 2016, affiliates of Care and affiliates of Royal acquired a senior housing community and adjacent land for $16.0 million. The senior housing community is managed by an affiliate of Royal under a management contract. As of March 31, 2016, Care’s portfolio consists of 26 properties across 10 states primarily in the Mid-Atlantic and Southern United States comprised of 11 Triple Net Lease Properties and 15 Managed Properties.

In Triple Net Lease Properties, Care only owns the real estate and enters into a long term lease with an operator who is typically responsible for bearing operating costs, including maintenance, utilities, taxes, insurance, repairs and capital improvements. Triple Net Lease Properties are not consolidated since Care does not manage or own the underlying operations. For Triple Net Lease Properties operations, Care recognizes primarily rental income from the lease since substantially all expenses are passed through to the tenant. In Managed Properties, Care generally owns between 65-80% of the real estate and the operations with affiliates of the management company owning the remainder. Care therefore consolidates all of the assets, liabilities, income and expense of the Managed Properties operations in segment reporting.

We evaluate performance of our real estate segment based on net operating income (“NOI”). We consider NOI as an important supplemental measure used to evaluate the operating performance of our real estate segment because it allows investors, analysts and our management to assess our unleveraged property-level operating results and to compare our operating results between periods and to the operating results of other real estate companies on a consistent basis. We define NOI as total revenue less property operating expense. Property operating expenses and resident fees and services are not relevant to Care’s Triple Net

Lease Properties since Care does not manage the underlying operations and substantially all expenses are passed through to the tenant. Our calculation of NOI may differ from similarly titled non-GAAP financial measures used by other companies. NOI is not a measure of financial performance or liquidity under GAAP and should not be considered a substitute for pre-tax income. The following tables present revenues and expenses, which include amounts attributable to non-controlling interests, by property type in our real estate segment for the three months ended March 31, 2016 and 2015, respectively.

Reconciliation of NOI to Pre-tax Income



	Three months ended March 31, 2016							Three months ended March 31, 2015
($ in thousands)	Triple Net Lease Operations		Managed Properties		Consolidated			Triple Net Lease Operations		Managed Properties		Consolidated
Revenues
Resident fees and services	$	—	$	882	$	882		$	—	$	436	$	436
Rental revenue	1,844		10,880		12,724			1,058		8,294		9,352
Less: Property operating expenses	—		8,705		8,705			—		6,661		6,661
Segment NOI	$	1,844	$	3,057	$	4,901		$	1,058	$	2,069	$	3,127

Other income					$	284						$	(365	)

Less: Expenses
Interest expense					1,854							1,330
Payroll and employee commissions					658							593
Depreciation and amortization					4,130							3,388
Other expenses					2,402							1,632
Pre-tax income (loss)					$	(3,859	)					$	(4,181	)

Results

Care had a pre-tax loss of $3.9 million for three months ended March 31, 2016, compared with pre-tax loss of $4.2 million for the same period in 2015. In February and March of 2015, Care made significant investments in 11 senior housing properties. The increase in the number of properties in the first quarter of 2016 and 2015 generated higher rental and other income in the 2016 period compared with the comparable 2015 period, however the Company also incurred additional depreciation, amortization and interest expenses as a consequence of the growth in Care’s property portfolio.

Care’s segment NOI was $4.9 million for the three months ended March 31, 2016, compared with $3.1 million in the prior year period, an increase of $1.8 million or 56.7%, primarily as a result of an increase in rental revenue partially offset by increased property operating expenses.

Revenues

Care’s total revenues were $13.9 million for the 2016 period, compared with $9.4 million for the comparable 2015 period, an increase of $4.5 million or 47.4%. Rental income in the 2016 period was $12.7 million, compared with $9.4 million for the comparable 2015 period, an increase of $3.4 million or 36.1%. Care earned other income of $1.1 million in the 2016 period, compared to $0.5 million in the comparable 2015 period. Other income was comprised of resident fees and reimbursable escrow earnings. The increase in rental revenue and other income was mainly due to the addition of eleven Managed Properties, including the properties managed by Royal which were added in the first quarter of 2015 and properties managed by Royal and Heritage which were added in the first quarter of 2016.

Expenses

Care’s expenses for three months ended March 31, 2016 were $17.7 million, compared with $13.6 million for the same period in 2015, an increase of $4.1 million or 30.5%. Care’s expenses are comprised of interest expenses on Care’s borrowings, payroll expenses (including employees of the managers at each of Care’s Managed Properties), professional fees, depreciation and amortization of properties and leases acquired and other expenses.

The primary increases period-over-period include property operating expenses of $2.0 million, interest expense of $0.5 million, and depreciation and amortization expenses of $0.7 million, offset by a reduction in acquisition and other costs of $0.8 million. The increase in property operating expenses was primarily attributable to consolidation of the expenses of the 5 Managed

Properties acquired in the first quarter of 2015 and 2 acquired in the first quarter of 2016, which also included an increase in amortization of in-place leases acquired.

Additionally, the Company is party to interest rate swaps in order to economically hedge interest rate risk associated with its real estate portfolio debt. These instruments swap fixed to floating rate cash streams in order to maintain the economics on this mortgage debt. Given movements in interest rates over the three months ended March 31, 2016, an unrealized loss was recorded in other expenses for $1.4 million.

Adjusted EBITDA

Care had Adjusted EBITDA of $2.1 million for the three months ended March 31, 2016, compared to $0.6 million in the three months ended March 31, 2015 with the drivers being the same as mentioned above for pre-tax income. See “Non-GAAP Financial Measures” below for a reconciliation to GAAP net income.

Asset Management segment - operating results for the three months ended March 31, 2016 and March 31, 2015



($ in thousands)	Asset Management segment
	Three months ended March 31,
	2016		2015
Fees earned from CLOs	$	2,620	$	2,820
Other management fee income	46		64
Other income	340		—
Total revenue	3,006		2,884


Payroll and employee commissions	1,241		848
Other expenses	105		162
Total expense	1,346		1,010

Pre-tax income	$	1,660	$	1,874

The Company’s asset management segment generates fee income from the CLOs under management and from its management of NPPF 1, a portfolio of tax-exempt securities owned by third-party investors. Total fee earning AUM of our asset management segment as of March 31, 2016 was $1.9 billion, of which $1.8 billion was attributable to the CLO business and $137.6 million was attributable to NPPF 1. As of March 31, 2015 total fee earning AUM was $2.0 billion of which $1.9 billion was attributable to the CLO business and $153.7 million was attributable to NPPF 1.

AUM for March 31, 2016 excludes Telos 7 of $167.8 million and Telos Credit Opportunities Fund of $86.6 million. The Company’s AUM in CLOs decreased approximately $115 million over the prior period, whereas the AUM from NPPF 1 declined by $16.1 million as it is in run-off. For a review of the inter-segment allocation of revenues from CLOs under management, please refer to “—Net Income attributable to CLOs managed by the Company” below.

Results

Pre-tax net income for the asset management segment was $1.7 million for the three months ended March 31, 2016, compared with pre-tax net income of $1.9 million for the prior year period, a decrease of $0.2 million. The key drivers of decline were a reduction in management fees by $0.2 million, offset by an increase an increase in other income of $0.3 million, and further reduced by an increase of payroll and employee commissions of $0.4 million. The reduction in management fees was driven by a combination of AUM declines in our older CLOs which are past their reinvestment periods and lower fees in our more recent CLOs as described below. The other income was a gain on extinguishment of an obligation to share future management fees for an amount that was significantly below its carrying value.

Revenues

Asset management fees totaled $3.0 million in the three months ended March 31, 2016, compared to $2.9 million for the prior year period. Although the number of CLOs under management remained the same for the period reported, fees earned from CLOs declined between the three months ended March 31, 2015 and the three months ended March 31, 2016. The decrease was due principally to the reduction in management fees and lower incentive fees earned on Telos 1 and Telos 2, which were issued in 2006 and 2007 and are now past their reinvestment period and whose assets are declining. This decline was offset by the gain on extinguishment of an obligation to share future management fees, mentioned above.

Expenses

Total expenses for the asset management segment were $1.3 million for the three months ended March 31, 2016, compared with $1.0 million for the three months ended March 31, 2015, which is driven by higher incentive compensation expense for the three months ended March 31, 2016, reflective of the period-over-period comparison to the prior year.

Adjusted EBITDA

Asset management segment adjusted EBITDA was $1.7 million for 2016 compared to $1.9 million in the prior year. The decline was driven by the same factors discussed above. See “Non-GAAP Financial Measures” below for a reconciliation to GAAP net income.

Net Income attributable to CLOs managed by the Company - for the three months ended March 31, 2016 and March 31, 2015

The Company earns revenues from CLOs under management which comprise fees earned for managing the CLOs, distributions received from the Company’s holdings of subordinated notes issued by the CLOs and realized and unrealized gains and losses from the Company’s holdings of subordinated notes. The management fees earned from the CLOs described below are reported in the asset management segment, while the sum of distributions earned and gains and losses on the Company’s holdings of subordinated notes issued by the CLOs are reported as net income (loss) attributable to the consolidated CLOs in the Company’s corporate and other segment.

The table below shows the Company’s share of the results attributable to the CLOs some of which are consolidated and some of which are not consolidated, which is a non-GAAP measure, for the three months ended March 31, 2016, which management believes is helpful for period-over-period comparative purposes. For the three months ended March 31, 2015, the residual interests in Telos 2 and Telos 4 are presented in the Consolidated column, as we did not sell our subordinated notes portfolio until the second quarter of 2015. In the three months ended March 31, 2016, fees on Telos 2 and Telos 4 are presented in the Other column.



($ in thousands)	Net Income attributable to CLOs managed by the Company
	Three months ended March 31,
	2016									2015
	Consolidated			Not consolidated⁽¹⁾			Non-GAAP total			Consolidated⁽²⁾			Not consolidated⁽¹⁾		Non-GAAP total
Management fees paid by the CLOs to the Company⁽³⁾	$	669		$	1,951		$	2,620		$	1,837		$	984	$	2,821
Distributions from the subordinated notes held by the Company	2,749			72			2,821			5,657			69		5,726
Realized and unrealized (losses) gains on subordinated notes held by the Company	(2,313		)	(292		)	(2,605		)	(7,805		)	—		(7,805		)
Net (loss) income attributable to the CLOs	$	1,105		$	1,731		$	2,836		$	(311	)	$	1,053	$	742

(1) Represents amounts from Telos 1, Telos 2, Telos 3 and Telos 4, which have been deconsolidated for the period that we did not own the subordinated notes. See Note 16—Assets and Liabilities of Consolidated CLOs, in the accompanying consolidated financial statements, regarding the deconsolidation of certain of our CLOs.

(2) Includes amounts from Telos 2 and Telos 4 of $1.2 million which were deconsolidated and sold in the second quarter of 2015.

(3) Management fees to Telos are shown net of any management fee participation by Telos to others.

All comparisons reference the Total column in the table above. Including the net income from our deconsolidated CLOs, pre-tax income from the Company’s CLO business was $2.8 million for the three months ended March 31, 2016, compared with pre-tax income of $0.7 million in 2015. The primary driver of the year-over-year increase of $2.1 million was lower realized

and unrealized losses incurred on the Company’s holdings of subordinated notes which was only partially offset by reduced distributions from the subordinated notes. The lower management fees were due to the runoff of Telos 1 and Telos 2, which are past their reinvestment period, plus the impact of lower fees on later CLOs. The lower distributions from the subordinated notes in 2016 compared to the prior year is primarily due to our sales of CLO subordinated notes during the second quarter of 2015. The realized and unrealized losses in the three months ended March 31, 2016 and March 31, 2015 were due to the mark-to-market write-down in our retained CLO subordinated note holdings.

Corporate and Other segment - operating results for the three months ended March 31, 2016 and March 31, 2015



($ in thousands)	Corporate and Other segment
	CLO subordinated notes and tax exempt securities								Credit investments				Corporate						Total
	Three months ended March 31,								Three months ended March 31,				Three months ended March 31,						Three months ended March 31,
	2016				2015				2016		2015		2016			2015			2016			2015
Net realized and unrealized gains (losses)	$	(1,424	)	⁽¹⁾	$	352		⁽²⁾	$	1,486	$	—	$	5,822		$	(675	)	$	5,884		$	(323	)
Interest income	218				238				3,721		—		58			43			3,997			281
Other income	—				—				—		—		151			—			151			—
Total revenue	(1,206		)		590				5,207		—		6,031			(632		)	10,032			(42		)

Interest expense					—				1,191		—		1,095			1,549			2,286			1,549
Payroll and employee commissions	55				33				—		—		2,619			1,408			2,674			1,441
Depreciation and amortization	—				—				—		—		62			—			62			—
Other expenses	72				59				1,174		—		4,709			2,775			5,955			2,834
Total expense	127				92				2,365		—		8,485			5,732			10,977			5,824
Distributions from the subordinated notes held by the Company	2,749				5,657						—		—			—			2,749			5,657
Realized and unrealized (losses) gains on subordinated notes held by the Company	(2,644		)		(7,805		)		—		—		—			—			(2,644		)	(7,805		)
Pre-tax income (loss)	$	(1,228	)		$	(1,650	)		$	2,842	$	—	$	(2,454	)	$	(6,364	)	$	(840	)	$	(8,014	)

(1) Tax exempt securities and Telos 1.

(2) Tax exempt securities only.

The Company’s corporate and other segment incorporates revenues from the Company’s principal investments which include CLOs, tax exempt securities, income from the Company’s credit investment portfolio and net gains or losses from the Company’s corporate finance activity, including the interest rate and credit derivative risk mitigation transactions. Segment expenses include interest expense on the Fortress credit facility and head office payroll, professional fees and other expenses.

CLO subordinated notes and Tax exempt securities

In the three months ended March 31, 2016, the Company had a pre-tax loss of $1.2 million on these portfolios, compared with a loss of $1.7 million in the three months ended March 31, 2015. The primary driver of the loss in 2016 was the sale of the remainder of the company’s tax-exempt securities portfolio in March 2016 for $8.9 million in proceeds and a loss on sale of $1.0 million.

The Company’s CLO subordinated notes portfolio consists of subordinated notes and related participations in management fees issued primarily by CLOs managed by the Company (“CLO holdings”). As of March 31, 2016 and March 31, 2015, the Company’s CLO holdings of subordinated notes and related participations, at fair value, were $26.4 million and $86.5 million respectively. On April 5, 2016 the Company purchased $26.0 million of subordinated notes of Telos CLO 2016-7, Ltd. (“Telos 7”).

For the three months ended March 31, 2016, the Company earned pre-tax income of $0.1 million on its CLO holdings, which comprised net distributions received of $2.7 million and realized and unrealized net losses of $2.6 million. For the three months ended March 31, 2015, CLOs recorded a loss of $2.1 million, comprising of $5.7 million cash distributions and $7.8 million of unrealized losses. The decline in distributions is a result of lower overall subordinated note holdings and the reduction in the realized and unrealized losses was due to a relatively flat marked-to-market position in the 2016 period as compared to the movement in interest rates during the comparable 2015 period.

Credit investments

The Company’s credit investment portfolio comprises its loan warehouse, credit opportunity fund and investments in NPLs. The Company establishes loan warehouse credit facilities which are designed to hold loans until new CLOs are formed. The Company established a warehouse facility in the third quarter of 2015 to purchase loans in anticipation of the subsequent launch of Telos 7. For the three months ended March 31, 2016, the Telos 7 warehouse earned $2.0 million of pre-tax income comprised of $2.2 million of interest income, $0.6 million of unrealized gains, offset by $0.8 million of interest and other expenses. The Telos 7 warehouse had not been formed in the prior year period. On April 5, 2016, Telos 7 changed from a warehouse to a CLO.

The Company also commenced its credit opportunities strategy in the second quarter of 2015 with the purchase of a pool of loans of middle-market borrowers. The Company has leveraged its principal investment of $25.0 million with an asset based secured credit facility, whereby the Company may borrow up to $100 million. The Company bears the first loss on any defaults in the pool of loans. As of March 31, 2016, the Company had drawn $61.9 million of the facility. The Credit Opportunities fund earned $0.8 million of pre-tax income driven by $1.5 million interest income, which was offset by $0.1 million unrealized losses and $0.6 million of interest and other expenses.

In the first quarter of 2016, the Company purchased an additional $11.9 million in NPLs, bringing the Company’s total investment in NPLs to $51.6 million. As of March 31, 2016, the fair value of the Company’s NPL portfolio and related REOs was $52.6 million. The mortgage loans were purchased at a discount to their unpaid principal balances and the estimated value of the underlying real estate. The goal of the strategy is to earn a return on the investment through a restructuring and subsequent reselling of the mortgage at a gain or through foreclosure on the property and selling the property at a gain. The Company began investing in NPLs in the second quarter of 2015 and expects to continue to report minimal income through the first half of 2016, until realizations on sales of loans and/or real estate properties begin to occur in the second half of the year as costs and expenses are typically recognized at the beginning of the overall investment period while profits are realized later. For the three months ended March 31, 2016, the Company reported a slight loss, with gains and early realizations more than offset by expenses related to establishing the strategy and purchasing the portfolio.

Corporate

Corporate revenues comprise net realized and unrealized gains and losses on the Company’s credit mitigation transactions and other corporate investments.

Net revenue from Corporate investments was $6.0 million in the three months ended March 31, 2016, compared with net losses of $0.6 million in the three months ended March 31, 2015. The increase was primarily the result of $5.8 million unrealized gains on investments in the three months ended March 31, 2016, compared with net unrealized losses of $0.7 million in the three months ended March 31, 2015. Interest and other income also increased from $43 thousand to $209 thousand from the prior year period. The significant unrealized gains $3.9 million for investments in the Star Asia Entities and $2.3 million on other principal investments. Subsequent to the end of the first quarter, on April 8, 2016 the Company sold 6.0 million shares of Star Asia for an aggregate $13.4 million, representing a gain to December 31, 2015 book value of $4.4 million, of which $3.9 million was recorded at March 31, 2016. The Company expects to record the remainder in the second quarter of 2016.

Corporate interest expense was $1.1 million in the three months ended March 31, 2016, compared to $1.5 million in the three months ended March 31, 2015. This interest expense is primarily interest on borrowings under the Company’s credit agreement with Fortress, which declined period-over-period. Further details of the Company’s borrowings under the Fortress credit agreement are provided in Note 17—Debt, in the accompanying consolidated financial statements.

Corporate and other operating expenses include payroll, professional fees and other expenses. Payroll expenses, which include salaries, bonuses and benefits of $2.6 million in the three months ended March 31, 2016, compared to $1.4 million in the three months ended March 31, 2015. Corporate payroll expense includes the expense of head office management, legal and accounting staff. Payroll expenses increased in the 2016 period as the Company expanded its staff as a result of our efforts to improve our reporting and controls infrastructure and higher accrued incentive compensation expense for the three months ended March 31, 2016 as compared to the prior year period as a result of higher Adjusted EBITDA period-over-period.

Other expenses were $4.7 million in the three months ended March 31, 2016 as compared to $2.8 million in the three months ended March 31, 2015. Other expenses primarily consisted of professional fees, insurance, office rent and other office costs and travel expenses. Other expenses increased in the 2016 period as a result of a combination of increased audit and compliance expenses related to internal controls over financial reporting due to increased compliance costs associated with being an accelerated filer combined with the additional integrations and other costs from on-boarding the new acquisitions.

Provision for income taxes

The total income tax benefit of $2.4 million and benefit of $1.5 million for the three months ended March 31, 2016 and 2015, respectively, is reflected as a component of income / (loss) from continuing operations.

For the three months ended March 31, 2016, the Company’s effective tax rate (“ETR”) on income from continuing operations was equal to (49.0)% which does not bear a customary relationship to statutory income tax rates. The ETR for the three months ended March 31, 2016 is negative and lower than the U.S. federal statutory income tax rate of 35% primarily due to $4.0 million of the discrete tax benefits for the period, primarily related to the tax restructuring that resulted in a consolidated corporate tax group effective January 1, 2016. See Note 1—Organization, in the accompanying consolidated financial statements.

The ETR on income from continuing operations for the three months ended March 31, 2016 before the tax restructuring benefit was 32.3%. This 32.3% ETR is lower than the U.S. federal statutory income tax rate of 35% primarily due to the release of valuation allowances on net operating losses earned by on certain subsidiaries, offset by valuation allowances on net operating losses incurred by other subsidiaries and the impact of certain gains and losses treated discretely for the period.

Discontinued operations, net

The Company completed its sale of PFG during the second quarter of 2015. Net income from PFG discontinued operations was $2.3 million in the first quarter of 2015. As such, there was no income from discontinued operations in the three months ended March 31, 2016 compared to $2.3 million for the three months ended March 31, 2015. For further information relating to the sale of PFG see Note 4—Dispositions, Assets Held for Sale and Discontinued Operations, in the accompanying consolidated financial statements.

Balance Sheet Information - as of March 31, 2016 compared to the year ended December 31, 2015

Tiptree Financial’s total assets were $2.6 billion as of March 31, 2016, compared to $2.5 billion as of December 31, 2015. The $0.1 billion increase in assets is primarily attributable to acquisitions in our real estate segment, increases in loans at fair value, as well as increases in accounts premiums and re-insurance receivables at Fortegra, offset slightly by a reduction in cash and Mortgage loans held for sale.

Total stockholders’ equity of Tiptree Financial was $318.4 million as of March 31, 2016 compared to $312.8 million as of December 31, 2015. The primary reason for the change in Tiptree Financial’s stockholders’ equity was from the increases due to shares issued for compensation, changes in non-controlling interests and net income, offset by decreases related to dividends paid and stock purchased under the stock purchase plans described below in “Part II—Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.”

Non-GAAP Financial Measures

Management uses EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. The Company believes that use of these financial measures on a consolidated basis and for each segment provide supplemental information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company’s ability to service its debt and to facilitate comparison among companies. The Company believes segment EBITDA and Adjusted EBITDA provides additional supplemental information to compare results among our segments. Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. These measures are not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for net income. The Company’s presentation of these measures may differ from similarly titled non-GAAP financial measures used by other companies. The Company defines EBITDA as GAAP net income of the Company adjusted to add consolidated interest expense, consolidated income taxes and consolidated depreciation and amortization expense as presented in its financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-specific debt incurred in the ordinary course of its subsidiaries’ business operations, (ii) adjust for the effect of purchase accounting, (iii) add back significant acquisition related costs, (iv) adjust for significant relocation costs and (v) any significant one-time expenses.

EBITDA and Adjusted EBITDA - Three Months Ended March 31, 2016 and March 31, 2015.



Reconciliation from the Company’s GAAP net income to Non-GAAP financial measures - EBITDA and Adjusted EBITDA
($ in thousands)	Three months ended March 31,
	2016			2015
Net income available to Class A common stockholders	$	5,555		$	(979	)
Add: net income attributable to non-controlling interests	1,859			(1,040		)
Less: net income from discontinued operations	—			2,345
(Loss) income from Continuing Operations of the Company	$	7,414		$	(4,364	)
Consolidated interest expense	6,480			5,129
Consolidated income taxes	(2,439		)	(1,496		)
Consolidated depreciation and amortization expense	8,377			15,464
EBITDA from Continuing Operations	$	19,832		$	14,733
Consolidated non-corporate and non-acquisition related interest expense⁽¹⁾	(4,278		)	(1,841		)
Effects of purchase accounting⁽²⁾	(2,030		)	(9,483		)
Non-cash fair value adjustments⁽³⁾	1,416			—
Significant acquisition expenses⁽⁴⁾	383			1,349
Subtotal Adjusted EBITDA from Continuing Operations of the Company	$	15,323		$	4,758

Income from Discontinued Operations of the Company	$	—		$	2,345
Consolidated interest expense	—			2,654
Consolidated income taxes	—			2,742
Consolidated depreciation and amortization expense	—			457
EBITDA from Discontinued Operations	$	—		$	8,198
Subtotal Adjusted EBITDA from Discontinued Operations of the Company	$	—		$	8,198

Total Adjusted EBITDA of the Company	$	15,323		$	12,956

Notes


(1)	The consolidated non-corporate and non-acquisition related interest expense is subtracted from EBITDA to arrive at Adjusted EBITDA. This includes interest expense associated with asset-specific debt at subsidiaries in the insurance and insurance services, specialty finance, real estate and corporate and other segments.

(2)

Following the purchase accounting adjustments, current period expenses associated with deferred costs were more favorably stated by $4.4 million and current period income associated with deferred revenues were less favorably stated by $2.4 million. Thus, the purchase accounting effect related to Fortegra, increased EBITDA in the first quarter of 2016 by $2.0 million above what the historical basis of accounting would have generated. The impact of this purchase accounting adjustments have been reversed to reflect an adjusted EBITDA without such purchase accounting effect.


(3)	For Care, Adjusted EBITDA excludes the impact of the change of fair value of interest rate swaps hedging the debt at the property level to conform to our updated interest rate hedging policy.


(4)	For the first quarter of 2016, $0.4 million of acquisition related costs represents costs in connection with Care’s acquisition of two properties which included taxes, legal costs and other expenses.

Segment EBITDA and Adjusted EBITDA from continuing operations — Three Months Ended March 31, 2016 and March 31, 2015



($ in thousands)	Segment EBITDA and Adjusted EBITDA - Three Months Ended March 31, 2016 and March 31, 2015
	Insurance and insurance services						Specialty finance						Real estate						Asset management				Corporate and other						Totals
	Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,				Three Months Ended March 31,						Three Months Ended March 31,
	2016			2015			2016			2015			2016			2015			2016		2015		2016			2015			2016			2015
Pre-tax income/(loss)	$	8,997		$	4,026		$	(983	)	$	435		$	(3,859	)	$	(4,181	)	$	1,660	$	1,874	$	(840	)	$	(8,014	)	$	4,975		$	(5,860	)
Add back:
Interest expense	1,155			1,739			1,185			511			1,854			1,330			—		—		2,286			1,549			6,480			5,129
Depreciation and amortization expenses	3,983			11,954			202			122			4,130			3,388			—		—		62			—			8,377			15,464
Segment EBITDA	$	14,135		$	17,719		$	404		$	1,068		$	2,125		$	537		$	1,660	$	1,874	$	1,508		$	(6,465	)	$	19,832		$	14,733

EBITDA adjustments:
Asset-specific debt interest	(99		)	—			(1,134		)	(511		)	(1,854		)	(1,330		)	—		—		(1,191		)	—			(4,278		)	(1,841		)
Effects of purchase accounting	(2,030		)	(9,483		)	—			—			—			—			—		—		—			—			(2,030		)	(9,483		)
Non-cash fair value adjustments	—			—			—			—			1,416			—			—		—		—			—			1,416			—
Significant acquisition expenses	—			—			—			—			383			1,349			—		—		—			—			383			1,349
Separation expenses	—			—			—			—			—			—			—		—		—			—			—			—
Segment Adjusted EBITDA	$	12,006		$	8,236		$	(730	)	$	557		$	2,070		$	556		$	1,660	$	1,874	$	317		$	(6,465	)	$	15,323		$	4,758

Liquidity and Capital Resources

The Company’s principal sources of liquidity are its holdings of unrestricted cash, cash equivalents and other liquid investments and distributions from operating subsidiaries and principal investments, including subordinated notes of CLOs, income from investments and sales of assets and investments. The Company intends to use its cash resources to continue to grow its businesses. Tiptree may seek additional sources of cash to fund acquisitions or investments. These additional sources of cash may take the form of debt or equity and may be at the parent, subsidiary or asset level. Tiptree is a holding company and its liquidity needs are primarily for interest payments on the Fortress credit facility, compensation, professional fees, office rent and insurance costs.

The ability of Tiptree’s subsidiaries to generate sufficient net income and cash flows to make cash distributions will be subject to numerous business and other factors, including restrictions contained in our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings.

We expect our cash and cash equivalents and distributions from operating subsidiaries and principal investments and our subsidiaries access to financing to be adequate to fund our operations for at least the next 12 months.

As of March 31, 2016, the Company had unrestricted cash of $43.2 million compared to $69.4 million at December 31, 2015, a net decrease of $26.2 million primarily driven by cash invested in corporate principal investments and operating activities.

Tiptree’s approach to debt is generally to use non-recourse (other than customary carveouts, including fraud and environmental liability), asset specific debt where possible that is amortized by cash flows from the underlying business or assets financed. The Company’s mortgage businesses rely on short term uncommitted sources of financing as a part of their normal course of operations. To date, the Company has been able to obtain and renew uncommitted warehouse credit facilities. If the Company were not able to obtain financing, then the Company may need to draw on other sources of liquidity to fund its mortgage business. See Note 17—“Debt, net” for additional information regarding these credit facilities.

Operating Company has a credit facility with Fortress to provide working capital and flexibly fund preliminary capital contributions to leveraged business or assets. Loans under the Fortress credit agreement bear interest at LIBOR (with a minimum LIBOR rate of 1.25%), plus a margin of 6.50% per annum. Operating Company is required to make quarterly principal payments of $0.5 million, subject to adjustment based on the Net Leverage Ratio (as defined in the Fortress credit agreement) at the end of each fiscal quarter. All remaining principal, and any unpaid interest, under the Fortress credit agreement is payable on maturity at September 18, 2018. Operating Company’s outstanding debt under the Fortress credit agreement was $45.0 million as of

March 31, 2016 compared to $45.5 million as December 31, 2015. See Note 17—Debt, net for additional information of the debt of Tiptree and its subsidiaries.

Consolidated Comparison of Cash Flows

Summary Consolidated Statements of Cash Flows - Three Months Ended March 31, 2016 and March 31, 2015



($ in thousands)	Three months ended March 31,
	2016			2015
Net cash (used in) provided by:
Operating activities
Operating activities - continuing operations (excluding VIEs)	$	9,776		$	(31,962	)
Operating activities - VIEs	2,831			10,697
Operating activities - discontinued operations	(6		)	30,950
Total cash provided by operating activities	12,601			9,685

Investing activities
Investing activities - continuing operations (excluding VIEs)	(84,486		)	(88,733		)
Investing activities - VIEs	(481		)	15,205
Investing activities - discontinued operations	—			(1,738		)
Total cash (used in) investing activities	(84,967		)	(75,266		)

Financing activities
Financing activities - continuing operations (excluding VIEs)	46,451			108,079
Financing activities - VIEs	(260		)	(19,853		)
Financing activities - discontinued operations	—			(2,500		)
Total cash provided by financing activities	46,191			85,726

Net (decrease) in cash	$	(26,175	)	$	20,145

The amounts associated with operating, investing and financing activities for the three months ended March 31, 2016 and 2015 from discontinued operations are presented as a component of the Company’s Consolidated Statements of Cash Flows.

First Quarter 2016

Operating Activities

Cash provided by continuing operations (excluding VIEs) was $9.8 million for the three months ended March 31, 2016. The primary sources of cash from continuing operations were: increased in unearned premiums at Fortegra as a result of the credit protection and specialty products, increase in revenues at Care as a result of increased investments in properties during the period, and mortgage sales outpacing originations. The primary uses of cash from continuing operations were: increases in re-insurance and premiums receivables at Fortegra as written policies increased significantly, and an increase in corporate expenses due to our investment in our controls and reporting infrastructure.

Cash provided by operating activities - VIEs was $2.8 million for the three months ended March 31, 2016. The primary source of cash from operating activities - VIEs were the net gain on the sale of loans within the CLOs and retained cash from the CLO subordinated note investments.

Investing Activities

Cash used in investing activities from continuing operations (excluding VIEs) was $84.5 million for the three months ended March 31, 2016. The primary drivers of these investments were our: investments in NPLs and principal investments at Corporate, investments in real estate properties at Care and increase in loans at Siena.

Cash used in investing activities - VIEs was $0.5 million for the three months ended March 31, 2016. The primary driver of the cash used in investing activities - VIEs was purchases of loans, net of proceeds from loan repayments and sales of loans.

Financing Activities

Cash provided by financing activities for continuing operations (excluding VIEs) was $46.5 million for the three months ended March 31, 2016. The primary drivers of the cash provided were: borrowings at Care to fund its investments in real estate, and borrowings at Siena to fund its loan growth, increase in debt at Fortegra for operations, partially offset by reduced borrowings at Reliance and Luxury as mortgage volumes declined. Cash used in financing activities - VIEs was $0.3 million for the three months ended March 31, 2016.

First Quarter 2015

Operating Activities

Cash used in continuing operations (excluding VIEs) was $32.0 million for the three months ended March 31, 2015. The primary sources of cash from continuing operations (excluding VIEs) were: operating cash generated at Care, increases in premiums, deferred revenue and policy liabilities at Fortegra. The primary uses of cash from continuing operations were: increased balances in mortgage loans held for sale as a result of higher volume in our mortgage segment, increase in cash payments for other liabilities and accrued expenses and increases in premiums and other receivables at Fortegra.

Cash provided by operating activities - VIEs was $10.7 million for the three months ended March 31, 2015. The primary source of cash from operating activities - VIEs was the net gains on sale of loans in the CLOs.

Cash provided by operating activities - discontinued operations was $31.0 million for the three months ended March 31, 2015. The primary driver of the cash provided was an increase in payables related to policy terminations and income from operations.

Investing Activities

Cash used in investing activities from continuing operations (excluding VIEs) was $88.7 million for the three months ended March 31, 2015. The primary uses of cash from investing activities from continuing operations (excluding VIEs) were: the acquisition of real estate at Care, incremental investment at Fortegra, increases in outstanding loans at Siena.

Cash provided by investing activities - VIEs was $15.2 million for the three months ended March 31, 2015. The primary driver of the use of cash in investing activities - VIEs was investments in new loans in the CLOs, more than offset by repayments and sales.

Cash used in investing activities - discontinued operations was $1.7 million for the three months ended March 31, 2015. The primary driver of cash provided from investing activities was the repayment of policy holder loans, partially offset by the purchase of property, plant and equipment.

Financing Activities

Cash provided by continuing operations (excluding VIEs) was $108.1 million for the three months ended March 31, 2015. The primary sources of cash were: increased borrowings at Siena to fund loan growth, borrowings on mortgage warehouse lines at Luxury, and increases in borrowings at Care to fund acquisitions and increasing Corporate borrowings on the Fortress facility to fund investments.

Cash used in financing activities - VIEs was $(19.9) million for the three months ended March 31, 2015. The primary driver of the sources of cash in financing activities - VIEs was an decrease in CLO liabilities.

Cash used in financing activities - discontinued operations was $2.5 million for the three months ended March 31, 2015. The primary driver of the cash used was the repayment of debt outstanding.

Contractual Obligations

The table below summarizes Tiptree’s consolidated contractual obligations by period for payments that are due as of March 31, 2016:



($ in thousands)	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Mortgage notes payable and related interest ⁽¹⁾	$	10,754	$	24,123	$	128,095	$	90,602	$	253,574
Trust Preferred Securities ⁽²⁾	—		—		—		35,000		35,000
Notes payable CLOs ⁽³⁾	—		—		—		722,150		722,150
Credit agreement/Revolving line of credit ⁽⁴⁾	133,422		53,000		208,158		—		394,580
Operating lease obligations ⁽⁵⁾	5,186		8,519		5,376		1,741		20,822
Total	$	149,362	$	85,642	$	341,629	$	849,493	$	1,426,126


(1)	Mortgage notes payable include mortgage notes entered into by subsidiaries of Care LLC in connection with its acquisition of several properties and the mortgage note entered into by Luxury Mortgage Corp. with the Bank of Danbury (see Note 17—Debt, Net, in the accompanying consolidated financial statements).

(2)

Fortegra has $35.0 million of fixed/floating rate trust preferred securities due June 15, 2037. The trust preferred securities bear interest at a floating rate of 3-month LIBOR plus the annual base rate of 4.10%. Interest is payable quarterly. In 2012, Fortegra entered into an interest rate swap that exchanges the floating rate for a fixed rate, as further described in Note 15—Derivative Financial Instruments and Hedging. The Company may redeem the trust preferred securities, in whole or in part, at a price equal to the full outstanding principal amount of such trust preferred securities outstanding plus accrued and unpaid interest.


(3)	Non-recourse CLO notes payable principal is payable at stated maturity, 2021 for Telos 1, 2022 for Telos 2, 2024 for Telos 3 and Telos 4, 2025 for Telos 5 and 2027 for Telos 6.

(4)

On September 18, 2013, Operating Company entered into a credit agreement with Fortress and borrowed $50.0 million under the credit agreement. The credit agreement also included an option for Operating Company to borrow additional amounts up to a maximum aggregate of $125.0 million, subject to satisfaction of certain customary conditions. On January 26, 2015, Tiptree entered into a First Amendment to its existing Fortress credit agreement (the “Amendment”) providing for additional term loans in an aggregate principal amount of $25.0 million to Tiptree. Tiptree paid down $25.0 million of the loans under the Fortress credit agreement upon the closing of the PFG sale on June 30, 2015 (see Note 17—Debt, net, in the accompanying consolidated financial statements, for further detail).

On July 25, 2013, Siena closed on a line of credit with Wells Fargo Bank. As of March 31, 2016, this revolving line is $75.0 million with an interest rate of LIBOR plus 225 basis points and a maturity date of October 17, 2019. As of March 31, 2016, there was $44.4 million outstanding on this line (see Note 17—Debt, net, in the accompanying consolidated financial statements).

On April 9, 2015, Siena entered into a $3.5 million subordinated promissory note with Solaia Credit Strategies LLC, an affiliate of Solaia Capital Management LLC, which owns approximately 38% of Siena. $1.5 million of this note was funded on April 9, 2015 and the remainder was funded on May 14, 2015. The note has a maturity of April 9, 2020 or six months following maturity of the Wells Fargo facility described above. The note has an interest rate of 12.50%. Siena may prepay the note following the first anniversary of issuance but is required to pay a prepayment premium expensed as a percentage of the prepayment amount as follows: 3% prior to the second anniversary of issuance; 2% after the second but before the third anniversary and 1% after the third but before the fourth anniversary.

On December 4, 2014, Fortegra entered into an amended and restated $140.0 million secured credit agreement (the “Credit Agreement”) among: (i) Fortegra and its wholly owned subsidiary LOTS Intermediate Co. (“LOTS”), as borrowers (Fortegra and LOTS, collectively, the “Borrowers”); (ii) the initial lenders named therein; and (iii) Wells Fargo Bank, National Association, as administrative agent, swingline lender, and issuing lender. The Credit Agreement provides for a $50.0 million term loan facility and a $90.0 million revolving credit facility. Subject to earlier termination, the Credit Agreement terminates on December 4, 2019. The weighted average rate paid for the three months ended March 31, 2016 was 3.22%. The Borrowers are required to repay the aggregate outstanding principal amount of the initial $50.0 million term loan facility in consecutive quarterly installments of $1.25 million commencing March 2015.

Fortegra has a $15.0 million revolving line of credit agreement (the “Line of Credit”) with Synovus Bank, entered into on October 9, 2013, with a maturity date of April 30, 2017. The Line of Credit bears interest at a rate of 300 basis points plus 90-day LIBOR, and is available specifically for the South Bay premium financing product. The weighted average rate paid for the three months ended March 31, 2016 was 3.62%.


(5)	Minimum rental obligation for Tiptree, Care, MFCA, Siena, Reliance, Luxury and Fortegra office leases. The total rent expense for the Company for the three months ended March 31, 2016 and 2015 was $1.7 million and $1 million, respectively.

Critical Accounting Policies and Estimates

The preparation of our financial statements in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. There have been no material changes to the critical accounting policies and estimates as discussed in our 2015 Annual Report on Form 10-K.

Recently Adopted and Issued Accounting Standards

For a discussion of recently adopted and issued accounting standards see the section “Recent Accounting Standards” in Note 2—Summary of Significant Accounting Policies of the notes to the accompanying consolidated financial statements.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various off-balance sheet arrangements including entering into derivative financial instruments and hedging transactions and sponsoring and owning interests in consolidated and non-consolidated variable interest entities.

Further disclosure on our off-balance sheet arrangements as of March 31, 2016 is presented in the “Notes to Condensed Consolidated Financial Statements” in “Part I. Item 1. Financial Statements” of this filing as follows:


•	Note 15—“Derivative Financial Instruments and Hedging”,


•	Note 16—“Assets and Liabilities of Consolidated CLOs” and


•	Note 24—“Commitments and Contingencies”.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Pursuant to Item 305(c) of Regulation S-K, we are not required to provide disclosures under this Item.

Item 4. Controls and Procedures

The Company’s management, with the participation of its Executive Chairman, Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of March 31, 2016. Based upon that evaluation, the Company’s Executive Chairman, Chief Executive Officer and Chief Financial Officer have concluded that, because the remediation measures designed to address the material weakness in its internal control over financial reporting described below have not yet been fully implemented or sufficiently tested, the Company’s disclosure controls and procedures were not effective as of March 31, 2016.

All systems of internal control, no matter how well designed, have inherent limitations. Therefore, even those systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Evaluation of Disclosure Controls and Procedures

The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). If we identify any material weaknesses, the rules do not allow the Company to conclude that our internal control over financial reporting is effective.

As of December 31, 2015, the Company reported the following material weaknesses in internal control over financial reporting that still remain material weaknesses as of March 31, 2016:


•	The Company did not design and operate effective process level controls to prevent or detect and correct material misstatements on a timely basis in financial statement accounts at its Care Managed Properties and Luxury Mortgage Corp. and Subsidiary (Luxury).


•	The Company did not have sufficient knowledgeable resources to operate the Company’s processes and controls at its Care Managed Properties and at Luxury. In addition, the Company failed to establish adequate monitoring activities over its Care Managed Properties and Luxury to ascertain whether the components of internal control were properly designed and operating effectively.

•

The Company did not design management review controls that operated at a sufficient level of precision to ensure the accounting for and measurement of current and deferred income taxes and business combinations are properly recorded and disclosed in the Company’s consolidated financial statements. The Company did not design management review controls that operated at a sufficient level of precision to ensure items are properly presented and classified in the Company’s consolidated statement of cash flows.

Certain control deficiencies resulted in immaterial and material misstatements in income taxes and immaterial misstatements in business combinations in the preliminary financial statements. The material misstatement in income taxes was corrected prior to the issuance of the consolidated financial statements. In addition, these control deficiencies resulted in immaterial misstatements in the statements of cash flows in each of the 2015 interim quarterly consolidated financial statements issued and in the preliminary annual 2015 consolidated financial statements and the annual 2014 consolidated financial statements that were all corrected in conjunction with the issuance of the 2015 consolidated financial statements. Other control deficiencies resulted in no misstatements. However, all of these control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis, and therefore management concluded that the control deficiencies represent material weaknesses in the Company’s internal control over financial reporting and the Company’s internal control over financial reporting was not effective as of December 31, 2015 and is still not effective as of March 31, 2016.

Plan for Remediation of Material Weaknesses

To remediate the material weakness in internal control over financial reporting described above, the Company plans to:


•	Review the processes and controls in place to measure and record transactions related to the Care Managed Properties and Luxury and to enhance the efficiency and effectiveness of the design and operation of those controls;


•	Enhance the complement of skilled accounting resources at the Care Managed Properties and Luxury or implement periodic internal audits over the Care Managed Properties;


•	Enhance monitoring activities and management review controls that operate over the Care Managed Properties and Luxury; and


•	Evaluate and enhance the level of precision in the management review controls over current and deferred income taxes, business combinations and the statement of cash flows.

The Company is committed to achieving and maintaining a strong internal control environment and believes that these remediation efforts will result in significant improvements in our internal control over financial reporting. This commitment is accompanied by management’s focus on processes and related controls to achieve accurate and reliable financial reporting.

The Company has begun to implement the remediation efforts described above; however until the remediation actions are fully implemented and the operational effectiveness of related internal controls validated through testing, the material weakness described above will continue to exist.

Changes in Internal Control over Financial Reporting

Other than the identification of the material weaknesses described above that originated in earlier periods, there were no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In management’s opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of Tiptree. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot reasonably estimate a range of loss.

Item 1A. Risk Factors

For information regarding factors that could affect our Company, results of operations and financial condition, see the risk factors discussed under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There have been no material change in those risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


(a)	Recent Sales of Unregistered Securities

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Share repurchase activity for the three months ended March 31, 2016 was as follows:



Period	Purchaser	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
January 1, 2016 to January 31, 2016: Open Market Purchases	Tiptree Financial	46,700	$	5.93	46,700	$	715,401
	Michael Barnes	46,500	5.92		46,500	718,688
	Total	93,200	$	5.93	93,200	$	1,434,089

February 1, 2016 to February 29, 2016: Open Market Purchases	Tiptree Financial	47,800	$	6.12	47,800	$	422,903
	Michael Barnes	47,103	6.12		47,103	430,637
	Total	94,903	$	6.12	94,903	$	853,540

March 1, 2016 to March 31, 2016: Open Market Purchases	Tiptree Financial	54,090	$	5.98	54,090	$	99,664
	Michael Barnes	53,990	5.96		53,990	109,052
	Total	108,080	$	5.97	108,080	$	208,716

(1)

On August 18, 2015, Tiptree Financial engaged a broker in connection with a new share repurchase program for the repurchase of up to $2.5 million of its outstanding Class A common stock. In addition, on the same date, Mr. Barnes entered into a Rule 10b5-1 plan pursuant to which he may, for his own account, purchase up to $2.5 million of Tiptree Financial’s outstanding Class A common stock. Repurchases by Tiptree Financial and purchases by Mr. Barnes will be made through a single broker and are anticipated to be allocated equally between Tiptree Financial and Mr. Barnes (or to Tiptree Financial in the case of trades that cannot be split evenly). The Company expects the share purchases to be made from time to time in the open market or through privately negotiated transactions, or otherwise, subject to applicable laws and regulations. The repurchase program concluded on April 13, 2016.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits, Financial Statement Schedules



The following documents are filed as a part of this Form 10-Q:

Financial Statements (Unaudited):
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	F-2
Consolidated Statements of Income for the three month period ended March 31, 2016 and 2015	F-3
Consolidated Statements of Other Comprehensive Income for the three month period ended March 31, 2016 and 2015	F-4
Consolidated Statement of Changes in Stockholders’ Equity for the period ended March 31, 2016	F-5
Consolidated Statements of Cash Flows for the three month period ended March 31, 2016 and 2015	F-6
Notes to Consolidated Financial Statements	F-8

Exhibits:
The Exhibits listed in the Index of Exhibits, which appears immediately following the signature page, is incorporated herein by reference and is filed as part of this Form 10-Q.

EXHIBIT INDEX



Exhibit No.	Description
10.1	First Amendment to the Amended and Restated Limited Liability Company Agreement of Tiptree Operating Company, LLC, dated January 1, 2016 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33549), filed on January 7, 2016 and herein incorporated by reference).
10.2	Third Amendment to Credit Agreement, dated January 14, 2016, by and among Tiptree Operating Company, LLC, Fortress Credit Corp. as Administrative Agent, Collateral Agent and Lead Arranger, and the lenders party thereto (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549), filed January 14, 2016 and herein incorporated by reference).
10.3	Executive Employment Agreement between Tiptree Asset Management Company, LLC and Julia Wyatt dated as of January 1, 2016 (previously filed as Exhibit 10.17 to Form 10-K (File No. 001-33549), filed March 15, 2016 and herein incorporated by reference).**
10.4	Executive Employment Agreement between Tiptree Asset Management Company, LLC and Timothy Schott dated as of March 10, 2016 (previously filed as Exhibit 10.1 to Form 8-K (File No. 001-33549), filed March 16, 2016 and herein incorporated by reference).**
31.1	Certification of Executive Chairman pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 (filed herewith).
31.2	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.3	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of Executive Chairman pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2	Certification of Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.3	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*

* Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets for March 31, 2016 and December 31, 2015, (ii) the Consolidated Statements of Income for the three months ended March 31, 2016 and 2015, (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015, (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the period ended March 31, 2016, (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 and (vi) the Notes to the Consolidated Financial Statements.

** Denotes a management contract or compensatory plan, contract or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Tiptree Financial Inc. has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.



		Tiptree Financial Inc.

Date:	May 10, 2016	By:/s/ Michael Barnes
		Michael Barnes
		Executive Chairman

Date:	May 10, 2016	By:/s/ Jonathan Ilany
		Jonathan Ilany
		Chief Executive Officer

Date:	May 10, 2016	By:/s/ Sandra Bell
		Sandra Bell
		Chief Financial Officer