UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2016



OR

For the transition period from __________________ to __________________



Commission File Number 001-11981

MMA CAPITAL MANAGEMENT, LLC
(Exact name of registrant as specified in its charter)



Securities registered pursuant to Section 12(b) of the Act:



Securities registered pursuant to Section 12(g) of the Act: None



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes    No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes   No ☑

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 ☑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 ☑No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

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 definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐ No ☑

The aggregate market value of our common shares held by non-affiliates was $104,977,132 based on the last sale price as reported in the over the counter market on June 30, 2016. 

There were 5,921,006 shares of common shares outstanding at March 8, 2017.

Portions of the registrant’s Proxy Statement to be filed on or about April 6, 2017 have been incorporated by reference into Part III of this report.



 

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Cautionary Statement Regarding Forward Looking Statements

This 2016 Annual Report on Form 10-K (this “Report”) contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements often include words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “seek,” “would,” “could,” and similar words or expressions and are made in connection with discussions of future operating or financial performance. 

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results.  They are not guarantees of future performance.  By their nature, forward-looking statements are subject to risks and uncertainties.  Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements.  There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report.  They include the factors discussed in Part I, Item 1A. “Risk Factors.”

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we make from time to time, and to consider carefully the factors discussed in Part I, Item 1A. “Risk Factors” in evaluating these forward-looking statements.  We do not undertake to update any forward-looking statements contained herein, except as required by law.







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MMA Capital Management, LLC

Consolidated Financial Highlights

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PART I

Item 1.  Business

MMA Capital Management, LLC, the registrant, was organized in 1996 as a Delaware limited liability company.  Unless the context otherwise requires, and when used in this Report, the “Company,” “MMA,” “we,” “our” or “us” refers to MMA Capital Management, LLC and its subsidiaries.

The Company partners with institutional capital to create and manage investments in affordable housing and renewable energy.  We invest for our own account and co-invest with our institutional capital partners.  We derive revenue from returns on our investments as well as asset management, performance and other fees from the investments, funds and ventures we manage.

The Company operates through three reportable segments – United States (“U.S.”) Operations, International Operations and Corporate Operations.  Refer to Notes to Consolidated Financial Statements – Note 15, “Segment Information” for more information about the revenues, operating profit and loss and total assets for each of our reportable segments.    

U.S. Operations

Our U.S. Operations segment consists of three business lines: Leveraged Bonds, Low Income Housing Tax Credit (“LIHTC”) and Energy Capital.  The Other Investments component of “Energy Capital and Other Investments” was re-allocated to our Leveraged Bonds business line in the fourth quarter of 2016.    

Leveraged Bonds 

In our Leveraged Bonds business line, we primarily own and manage bonds for our own account that finance affordable housing and infrastructure in the U.S.

The bonds we hold are primarily fixed rate and unrated.  Our bonds are also generally tax-exempt and collateralized by affordable multifamily rental properties.  Substantially all of the rental units in these multifamily properties, which may be subsidized by the government, have tenant income and rent restrictions.     

The Company also has a smaller portfolio of other real estate bonds.  This portfolio includes municipal bonds that finance the development of infrastructure for a mixed-use commercial development and are secured by incremental tax revenues generated from the development.  Our other real estate bonds also include senior investments in a trust collateralized by a pool of tax-exempt municipal bonds that finance a variety of non-profit projects such as healthcare and educational facilities, as well as a subordinated investment in a collateralized mortgage-backed security that finances multifamily housing. 

The Company has financed its ownership of a majority of its investments in bonds through total return swap (“TRS”) agreements.  These financing arrangements enable the Company to retain the economic risks and rewards of fixed rate bonds that are referenced in such agreements and generally require the Company to pay a variable rate of interest that resets on a weekly basis.  The Company has also executed TRS agreements to synthetically acquire the total return of multifamily bonds that it does not own.    The Company has hedged a portion of the interest rate risk associated with its TRS agreements and other sources of interest rate exposure using various interest rate risk management agreements.  

Except for three bond investments that were eliminated for financial statement purposes upon the consolidation of corresponding real estate partnerships, Table 1 provides key metrics related to all bonds in which we have an economic interest, including bonds that are not recognized for financial statement purposes but for which the Company maintains economic risks and rewards through TRS agreements that the Company accounted for as derivatives as of December  31, 2016 (such bonds and TRS agreements are collectively referred to as the “Bond Portfolio”).  See Notes to Consolidated Financial Statements – Note 5, “Debt” and Notes to Consolidated Financial Statements – Note 6, “Derivative Instruments” for more information about how TRS agreements are reported in the Company’s financial statements and the Company’s transactions to hedge a portion of its interest rate risk.    

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Table 1:  Bond Portfolio - Summary







The fair value of the Bond Portfolio as a percentage of its UPB declined from 104.9% as of September 30, 2016 to 102.3% as of December 31, 2016 primarily as a result of an increase in market yields in the fourth quarter of 2016.  The weighted-average debt service coverage ratio of the Bond Portfolio improved from  1.09x as of September  30, 2016 to 1.11x as of December  31, 2016.   



Other Investments of the Leveraged Bonds Business Line

At December 31, 2016, we owned, or were an equity partner in, three direct investments in real estate consisting of two land parcels and a town center development.  The carrying value of these investments was $26.1 million as of such reporting date.  These investments were previously reflected in the Energy Capital business line.

LIHTC 

In our LIHTC business line, we primarily own and manage limited partner (“LP”) and general partner (“GP”) investments in affordable housing communities in the U.S.  In this regard, we provide asset management and administrative services to a limited liability company formed in 2015 by the Company and a commercial bank (“TC Fund I”) that acquired limited partnership interests

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either directly or through fund investments in approximately 650 affordable properties.  We also acquired several direct real estate investments in connection with the formation of TC Fund I.  Through this business line, we also have loan receivables from, and an option to purchase, a tax credit asset manager.  As of December 31, 2016, the tax credit asset manager had approximately 250 properties under management.  Additionally, we made guarantees through this business line to some of our institutional clients related to the receipt of tax credits and the performance of the underlying assets.    

TC Fund I

As consideration for providing asset management and administrative services to TC Fund I, the Company is entitled to an asset management fee of 2% per annum on the initial capital contribution of $211 million by the investor with which the Company partnered to form TC Fund I.  This amount accrues quarterly in advance, bears interest at 6% per annum compounded annually and is to be paid solely from cash flows received by TC Fund I from its portfolio of limited partnership investments.  Asset management fees are generally payable to the Company by TC Fund I after payments are made by TC Fund I to: 1) repay any tax credit losses funded by the investor; 2) redeem any investor member voluntary loans; 3) to repay any mandatory loans made by the Company to fund investor tax credit losses; 4) to pay any expense loans; 5) to establish any required reserves; and 6) to pay any accrued guarantee fees.  By their nature, investments of TC Fund I are expected to break-even from an operating cash flow perspective.  In this regard, excess cash flows to limited partners are generated primarily from residual events that generally occur at the end of the tax compliance period and are outside of the control of the Company in terms of if, and when, they occur.

As of December 31, 2016, the Company was contractually due $4.2 million for asset management and administrative services rendered to TC Fund I through such date.  However, such amount has not yet been recognized in the Company’s financial statements because it was assessed to not be reasonably assured of collection.  The Company’s assessment in this case considers various factors that include, but are not limited to, the length of time until the Company expects to receive payment and the priority of payment of such amounts in TC Fund I’s cash distribution waterfall.  The Company assesses each reporting period whether asset management fees that are due are reasonably assured of collection.

In connection with the formation of TC Fund I, the Company has also provided a limited guarantee of tax credits that are expected to be generated by TC Fund I’s portfolio of investments.  In consideration for providing this guarantee, the Company is contractually entitled to receive $4.2 million in guarantee fees from TC Fund I.  The Company recognized a guarantee fee receivable for such amount in its financial statements on December 31, 2015.  This receivable bears interest at 6% per annum, compounds annually, and will be paid solely from cash flows received by TC Fund I from its portfolio of limited partnership investments.  As of December 31, 2016, the Company had been paid $3.1 million in connection with this receivable (including accrued interest).   

To cover certain costs associated with the organization of TC Fund I, the Company lent $5.3 million to TC Fund I upon its formation.  This loan accrues interest at 9.5% per annum, compounds annually and will be repaid by TC Fund I after it pays accrued guarantee and asset management fees.  As of December 31, 2016, this loan, which had a carrying value of $0.2 million, was on non-accrual status given, among other factors, the timing and amount of cash flow projections for this loan and its payment priority in TC Fund I’s waterfall.  The non-accrual status of this loan is re-assessed by the Company each reporting period.

Direct Real Estate Investments

As of December 31, 2016, the Company owned two real estate investments that it acquired on December 31, 2015 in connection with the formation of TC Fund I.  These investments, which consist of two 99% limited partnership interests, had a carrying value of $4.8 million at December 31, 2016.

As of December 31, 2016, the Company also owned a  0.01% and 1.0% general partnership interest in two partnerships that own affordable multifamily properties that collateralize three of our bond investments.  The acquisition of such general partner interests in 2016 resulted in the consolidation of these partnerships for reporting purposes and, as a result, the Company recognized the affordable multifamily properties on its Consolidated Balance Sheets, which had a combined carrying value of $26.2 million at December 31, 2016.  See “Table 1:  Bond Portfolio Summary” and Notes to Consolidated Financial Statements – Note 14, “Consolidated Funds and Ventures” for more information.

Interests in a Tax Credit Asset Manager

In 2014, prior to the formation of TC Fund I, the Company sold substantially all of its LIHTC business to a tax credit asset manager.  As part of this transaction, the Company provided a subordinated loan and received an option to purchase the tax credit asset manager in the future.

The UPB of the subordinated loan to the tax credit asset manager was $13.0 million as of December 31, 2016.  This loan is non-amortizing and has a maturity date of June 30, 2025.  This loan bears interest at a base rate of 11% that is paid quarterly and contingent interest up to an additional 13%.  Since origination, the Company has received principal and interest payments of $8.4 million.  The receipt of such amounts are reported by us as a deferred gain in the Company’s Consolidated Balance Sheets (or classified in “Other Liabilities”) since the corresponding conveyance of the Company’s LIHTC business could not be treated as a sale

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for financial reporting purposes.     

The option price to acquire the tax credit asset manager is $12.0 million, subject to various purchase price adjustments.  The tax credit asset manager primarily manages LIHTC investments on behalf of third party investors and for its own account.  Our purchase option of the tax credit manager may be exercised between September 30, 2019 and September 30, 2024, though it may be accelerated for certain events.

Other Guarantees

Prior to the sale of substantially all of our tax credit equity business in 2014, we “syndicated” tax credits by forming LIHTC funds that purchased directly or indirectly the limited partnership interests in multiple Lower Tier Property Partnerships (“LTPPs”).  We raised capital from institutional investors, which comprised virtually all of the equity of the LIHTC funds, and the LIHTC funds used this capital, and sometimes interim debt financing, to purchase the limited partner interests in the LTPPs.  We were the general partner of, and managed, the LIHTC funds and usually retained an interest of between 0.01% and 1.0% in each of them.  The remaining 99.0% to 99.99% interest in each LIHTC fund was typically held by one or more large financial institutions.

We provided two general types of guarantees in connection with these transactions: (1) LIHTC fund-level guarantees where the Company, directly and indirectly, guaranteed the investors’ return on investment (“Guaranteed Funds”); and (2) individual indemnifications to specific investors in non-guaranteed LIHTC funds related to the performance of specific LTPPs.   Because the LTPPs and the LIHTC funds (as well as any intermediate entities) are pass-through entities for federal income tax purposes, the equity owners of the LIHTC funds receive the tax benefit of the credits generated by the LTPPs. In order for the investors in the Guaranteed Funds to benefit from low-income housing tax credits, the LTPPs in which these entities invest must operate affordable housing properties in compliance with a number of requirements in the Internal Revenue Code (the “Code”) and the regulations under it.  Failure to comply continuously with these requirements throughout a 15-year recapture period could result in loss of the right to those low-income housing tax credits, including recapture of credits that were already taken, potentially creating a liability under our guarantees.  The execution of these guarantees caused the Company to consolidate the Guaranteed Funds for financial reporting purposes.

As consideration for providing these guarantees, the Company received upfront guarantees fees of $28.9 million that were initially deferred for financial reporting purposes and that are amortized into earnings over the contractual life of such obligations.  However, because the Guaranteed Funds have been consolidated by the Company for reporting purposes, certain fees and other payments received from these entities are not classified as revenues in our Consolidated Statements of Operations but rather as income that is allocated to us from consolidated funds and ventures (“CFVs”).

When the Company sold its tax credit equity business in 2014 to a tax credit asset manager, it agreed to indemnify the tax credit asset manager from investor claims related to those guarantees and, therefore, we continue to be obligated on our guarantees to investors in these funds.    

Refer to Notes to Consolidated Financial Statements – Note 7, “Fair Value” for more information about the fair value measurement of certain of our contractual rights and obligations that we maintain through our LIHTC business line.

Energy Capital

In our Energy Capital business line, our wholly owned subsidiary, MMA Energy Capital, LLC (“MEC”), originates debt capital directly and through multiple ventures with a leading global private investment firm and an alternative asset manager (hereinafter, the “Solar Ventures”) to develop, build and operate renewable energy systems throughout North America.  The Solar Ventures include Renewable Energy Lending, LLC (“REL”), Solar Construction Lending, LLC (“SCL”) and Solar Permanent Lending, LLC (“SPL”).  MEC provides loan origination, servicing, asset management and other management services to the Solar Ventures and is entitled to receive reimbursement for most costs the Company incurs in executing its responsibilities as administrative member for the Solar Ventures.  In this business line, we also manage legacy solar assets. 

The Company made an initial $75 million capital contribution into REL in November 2016 that was comprised of solar energy loan investments, including our membership interests in SCL and SPL, in exchange for membership interests in REL.  As of December 31,

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2016, the Company’s investment in REL, which represents an 84.6% ownership interest, had a carrying value of $75.5 million.  We received $12.2 million in cash distributions from REL, SCL and SPL during 2016.   

As of December  31, 2016, the UPB of loans that were funded through REL, SCL or SPL was $123.5 million.  Additionally, in September 2016, the Company directly funded a $10.0 million loan to a residential solar power provider in the U.S.

As of December 31, 2016, all of the outstanding loans originated by MEC, which had an average tenor ranging from one to sixty months with a weighted-average coupon of 10.2%, were performing pursuant to their contractual terms.

Refer to Notes to Consolidated Financial Statements – Note 7, “Fair Value” for more information about the fair value measurement of certain of our contractual rights and obligations that we maintain through our Energy Capital business line.

International Operations

We manage our International Operations segment through our wholly owned subsidiary, International Housing Solutions S.à r.l. (“IHS”).  IHS’s strategy is to raise, invest in and manage private real estate funds and a public company that invest in residential real estate.  In addition to earning asset management fees, IHS invests as a limited partner and is entitled to special distributions based on returns generated by the funds it sponsors.    

IHS currently manages five funds. 











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In managing these funds, we are paid asset management fees and,  in most cases, earn a return on our co-investment and have the opportunity to earn performance fees after various investment hurdles are met.

MMA also owns a 60% interest in IHS Property Management Proprietary Limited (“IHS PM”), which provides property management services to a  substantial portion of the properties in our IHS-managed funds.

Corporate Operations

Our Corporate Operations segment is responsible for supporting accounting, reporting, compliance and financial planning and analysis.

Competition

Within our Leveraged Bond and LIHTC business lines of our U.S. Operations, we face competition from numerous financial institutions, including banks, government-sponsored enterprises, mutual funds and asset management companies, related to the debt and equity that we manage or invest in real estate related assets. 

In our Energy Capital business line of our U.S. Operations, we face competition from banks and other solar lenders related to the loans we provide to develop and build renewable energy systems.

In our International Operations, our primary activity is making workforce housing investments in South Africa for the funds and ventures we invest in and manage.  We compete against other investors, developers and companies to acquire, develop and manage similar housing investments.  We also compete against other asset managers in raising capital and making investments.

While we have historically been able to compete effectively against such competitors as a result of our quality of service, reputation, access to investor capital and longstanding relationships with developers, many of our competitors benefit from substantial economies of scale in their business and have other competitive advantages.  The Company’s ability to compete also depends on its ability to attract and retain professional and other personnel.

Employees 

At December 31, 2016, we had 63 employees, which included 28 employees in our U.S. and Corporate Operations and 35 employees in our International Operations (the latter headcount excludes employees of IHS PM).  None of these employees are party to any collective bargaining agreements.

Other

Our principal office is located at 3600 O’Donnell Street, Suite 600, Baltimore, MD 21224.  Our telephone number at this office is (443) 263-2900.  Our corporate website is located at www.mmacapitalmanagement.com, and our filings under the Exchange Act are available through that site, as well as on the U.S. Securities and Exchange Commission (“SEC”) website at www.sec.gov.    The information contained on our corporate website is not a part of this Report.



Item 1A.  Risk Factors

Investing in our common shares involves various risks and uncertainties.  The risks described in this section are among those that could, directly or indirectly, have a material adverse effect on our business, financial condition or results of operations, as well as on the value of our common shares.

Risks Related to Our Business

Increases in interest rates and credit spreads may adversely affect the fair value of our assets and increase our costs of borrowing. 

Investments in our bond portfolio and other fixed rate financial instruments that are reported at fair value in our financial statements expose us to changes in interest rates and credit spreads.  These instruments include our investments in bonds, loans held-for-sale, loans for which we elected the fair value option and derivative financial instruments. 

Interest rates can fluctuate for a number of reasons, including as a result of changes in the fiscal and monetary policies of the federal government and its agencies.  Interest rates can also fluctuate as a result of geopolitical events or changes in general economic conditions, including events or conditions that alter investor demand for Treasury or other fixed-income securities.

Changes in market conditions, including changes in interest rates, liquidity, prepayment and/or default expectations, and the level of uncertainty in the market for a particular asset class, may cause fluctuations in credit spreads.

If interest rates increase or credit spreads widen, the fair value of our investments in bonds and other fixed rate financial instruments (whose fair value measurements are based upon contractual cash flows) will generally decline and, therefore, have a negative effect on our financial results and net worth.  Declines in the fair value of these instruments could be significant in such circumstances. 

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If short-term interest rates rise, our borrowing costs would increase and our net income would decline as interest payments associated with a significant portion of our debt obligations are indexed to short-term interest rates and, therefore, would increase.  However, the Company may, from time to time, enter into agreements with third parties that are designed to manage a portion of this risk.  

Changes in capitalization and interest rates may adversely impact the fair value of our investments in non-performing bonds, investments in subordinate cash flow bonds, certain TRS and other real estate-related investments.

For non-performing bonds, subordinate cash flow bonds and certain TRS derivatives that are reported at fair value in our financial statements, the Company measures the fair value of such instruments based upon internally-generated projections over a 10-year investment period of future net operating income from the underlying properties that serve as collateral for such instruments (a terminal value is added to these projections to estimate remaining property value that is expected to be realized at the end of the projection period).  In this regard, an increase in capitalization and interest rates would generally cause the fair value of these investments, as well as that of our other direct real estate investments, to decline.  Additionally, the value of our real estate-related interests in our LIHTC business line is dependent upon the residual value of multifamily rental properties, which will generally decline if capitalization and discount rates increase. 

The magnitude of changes in the value of our real estate-related interests could vary from one market to another market as a result of changes in capitalization and discount rates.

We are exposed to various risks associated with TRS agreements that we use for financing and other purposes.  

A TRS is an agreement that requires one party to make interest payments based on either a  fixed or floating rate of interest in exchange for payments from its counterparty that are based on the return of a  referenced asset that is typically an index, a loan or a bond.  All payments under this type of agreement are calculated based upon contractually-specified notional amounts.  In a typical TRS agreement, we are required to make interest payments that are based on a floating rate of interest and our counterparty is required to make payments to us that reflect the total return associated with a referenced asset.  Cash flows associated with this type of agreement are subject to risks associated with the referenced asset (including interest rate and real estate-related risks) and are exposed to the credit risk of both the obligor on the referenced asset and our counterparty to a TRS agreement.  To the extent the fair value of a  referenced asset declines, we are at risk of having to provide additional collateral to our TRS counterparty.  If we were unable to post additional collateral in such circumstances, the referenced asset might be sold at a time when its full value could not be achieved and our existing collateral would be at risk of being retained by our TRS counterparty.

Cash flows from our Bond Portfolio and our other real estate-related investments (for both U.S. Operations and International Operations) are exposed to various risks associated with real estate to which our investments are related.

Because a substantial portion of our investments are secured by real estate, or consist of real estate or investments in entities that own real estate, the value of these investments is exposed to various real estate-related risks.  Most of these investments are directly or indirectly secured by multifamily rental properties and, therefore, the value of these investments may be adversely affected by changes in macroeconomic conditions or other developments in real estate markets.  These factors include (but are not limited to): (i) increasing levels of unemployment and other, adverse regional or national economic conditions; (ii) decreased occupancy and rent levels due to supply and demand imbalances; (iii) changes in interest rates that affect the value of the real estate we own or in which we have an interest; and (iv) lack of or reduced availability of mortgage financing.

The value of most of our real estate-related investments is based upon cash flows generated by tenant leases.  The majority of the properties that we have financed or in which we have invested have rent limitations that could adversely affect the ability to increase rents.  The majority of such properties also have tenant income restrictions that may reduce the number of eligible tenants and, as a result, occupancy rates at such properties could decline.  If tenants move out or cannot pay the rents charged on the specific units they lease, the owners (our borrowers and partners) may be unable to lease the units to replacement tenants at full rent (or at all).  In such circumstances, cash flows from such properties may not be sufficient to pay interest on our bonds or loans, which would cause the value of our investments to decline. 

Real estate may also decline in value because of adverse changes in market conditions, environmental problems, casualty losses for which insurance proceeds are not sufficient to cover the loss, or condemnation proceedings.  The value of our real estate-related investments and our ability to conduct business may also be adversely affected by changes in local or national laws or regulatory conditions that affect significant segments of the real estate market, especially the multifamily housing market, including environmental, land use and other laws and regulations that affect the cost of maintaining and operating the properties in which we have an interest.

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We are exposed to various risks associated with agreements that we use to manage interest rate risk.

From time to time, we may execute agreements that are designed to reduce our interest rate risk.  For example, we may enter into interest rate swaps whereby we agree to pay a fixed rate of interest and the counterparty agrees to pay us a floating rate of interest in order to synthetically fix our variable rate debt to better match assets that pay on a fixed rate basis.  We also may enter into interest rate caps whereby we pay the counterparty on the interest rate cap an upfront premium and the counterparty pays us if the benchmark rate on the cap reaches a certain level. As further discussed above, derivative instruments are exposed to changes in fair value as a result of changes in interest rates.  Additionally, interest rate swaps and caps expose the Company to the risk of counterparty default (including counterparty failure to meet its payment obligations).  Further, there is a risk that these contracts do not perform as expected and may cost more than the benefits we receive.  Moreover, in the case of interest rate swaps, we are exposed to the risk of collateral calls if the fair value of such agreements declines.

We may be unable to make new investments in order to grow shareholder value over the long term.

There is a risk that we will not be able to deploy our cash or expand our leverage to make investments that generate risk-adjusted returns that sufficiently grow shareholder value.  Also, because there are no restrictions as to the nature of our investments, our investments in the future may result in additional or new risks that we do not face today. 

We face risks associated with our renewable energy finance business.  

Our Energy Capital business line originates development, construction and permanent loans for the Solar Ventures and its own account primarily for the purpose of building commercial scale solar facilities.  This business is subject to construction risk, permanent financing and repayment risk and collateral risks (such as value and ability to foreclose).  In addition, Federal and State governments have established various incentives and financial mechanisms to accelerate the adoption of renewable energy.  These incentives include tax credits, tax abatements and rebates among others.  These incentives help catalyze private sector investments in solar energy.  Changes in government incentives, whether at the federal or local level, could adversely affect our renewable energy finance business.  Furthermore, the ability of the Solar Ventures and the Company to fund our development or construction loan commitments is currently and may become increasingly dependent upon the repayment of other, similar loans that we originated.  Repayment of such loans is often dependent upon permanent loans, tax credit equity and other monetization events whose funding is outside of our control since, among other factors, lenders of permanent loans and syndicators of tax credit equity may require access to the credit markets. 

We have been, and may continue to be, directly and indirectly affected by disruptions in credit markets.

Our business was significantly affected by the disruptions in the credit markets during the global financial crisis.  Disruptions in credit markets may cause significant deterioration in the market for tax-exempt mortgage revenue bonds and other debt instruments that are a major part of our assets and likely to play a significant role in our reinvestment strategy.  This has in the past and may in the future result in our having to reduce the carrying value of our bonds and other receivables associated with our lending activities.  We are also dependent upon our capital partners to extend existing TRS agreements and other financings upon their maturity.  If we were unsuccessful in renewing such agreements, we may be forced to create liquidity in an unfavorable market which could have a material adverse effect on our business.  

Virtually all of our non-cash assets are illiquid and may be difficult to sell at their reported carrying values.

Our bonds, our direct and indirect investments in real estate, our renewable energy investments, and our other debt investments are illiquid and difficult to value.  In particular, our investments in bonds are unenhanced and unrated and, as a consequence, there is a relatively small trading market for these instruments.  The relative lack of liquidity in the market for our bond investments complicates our ability to measure their fair value and that of other debt investments.  Therefore, there is a risk that if we need to sell any of these assets, the price that we are able to realize may be lower than their carrying value in our financial statements.   

Some of our bonds are 30 or more days past due in payment of principal and/or interest and other bond investments are at risk of becoming 30 or more days past due in payment of principal and/or interest.

As of December 31, 2016, the aggregate UPB of bonds that were 30 or more days past due in either principal and/or interest was $9.9 million, or approximately 4.4% of our Bond Portfolio.  We report our defaulted bonds at their fair value, which takes into consideration a borrower’s default.  However, amounts we realize could be even less than such estimates if foreclosures were pursued or if our borrowers filed for bankruptcy protection.  Additionally, properties collateralizing certain performing bonds have net operating income (as represented in operating statements provided by the borrowing partnerships), which is less than the debt service owed to us.  These bonds are at risk of default if the partners of the borrowing partnerships are unable or unwilling to continue to cover the shortfall in order to pay the full debt service.  

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The value of our tax-exempt bonds could be adversely affected by changes in tax laws.

There is a risk that the government will pass legislation that could adversely affect the value of our tax-exempt bonds. The government could make changes in tax or other laws, such as affordable housing incentive programs, that while not directly affecting our tax-exempt bonds, could make them less valuable to investors.  For example, if the federal government were to lower marginal federal income tax rates, or phase out the tax-exempt nature of the interest income for all or higher income taxpayers, our bonds would likely decline in value.  Congress could also pass laws that make competing investments more attractive than tax-exempt bonds, which would also make our bonds less valuable.

Our bonds may not retain their tax-exempt status.

On the date of initial issuance of any tax-exempt bond that we hold, bond counsel or special tax counsel has rendered its opinion that interest on the bond is excludable from gross income for federal income tax purposes.  However, under certain circumstances, our bonds could lose their tax-exempt status subsequent to issuance.  While we take steps to ensure that these circumstances do not occur, there can be no guarantees that the tax-exempt status will be maintained.  If our bonds were to lose their tax-exempt status, then the fair value of these investments would decline.  In this case, if a bond was the referenced asset in a TRS financing, the TRS would terminate, thereby causing us to reacquire such bonds at fair value while we would also be obligated to pay any difference required to settle a TRS.  If we did not purchase a bond in such circumstances, our counterparty could sell it and, if its value at the inception of the TRS agreement was not realized upon sale, we would also be obligated to pay any difference required to settle a TRS agreement and our TRS collateral would be at risk.

Executing TRSs are important to our U.S. Operations.

Currently, our TRS agreements are with one financial institution.  At least in the near term, entering into new TRS agreements, or extending existing agreements, is a significant part of our U.S. Operations.  To the extent we are unable to execute these types of agreements in the future, we may be unable to achieve our near term goals and our financial position could suffer significantly. 

We could lose the tax benefit of our Net Operating Losses (“NOLs”).

We have significant deferred tax assets that are fully reserved as of December 31, 2016.  The most significant deferred tax asset is our federal NOLs, which can be used to offset federal taxable income for the foreseeable future.  However, there are events that could cause us to lose, or to otherwise limit, the amount of NOLs available to us.  For example, our NOLs could be lost if we suffer a change of control event as defined by the Internal Revenue Code.  A change of control event may occur when a shareholder, or a collection of shareholders, owning at least five percent of our shares, acquire more than 50% of our outstanding shares within a three-year period.  The Company adopted a Tax Benefits Rights Agreement on May 5, 2015 (the “Rights Plan”) in an attempt to avoid a change of control event as defined by the Internal Revenue Code, although the Company cannot guarantee the effectiveness of the Rights Plan.  Changes in tax laws could also cause us to lose, or to otherwise limit, the amount of NOLs available to us.

Our NOLs are also subject to a 20-year carryforward limitation that limits the time that we have to generate the income necessary to fully utilize our NOLs.  In this regard, it is possible that some of our NOLs will become permanently impaired if the Company is unable to generate the income required to utilize our NOLs before their expiration period begins in 2027.

If we become subject to the Investment Company Act of 1940 (the “Investment Company Act”), we could be required to sell substantial portions of our assets at a time when we might not otherwise want to do so, and we could incur significant losses as a result.

We continuously monitor our business activities to ensure that we do not become subject to regulation as an investment company under the Investment Company Act.  We currently rely on exemptions from the Investment Company Act for companies that are primarily engaged in the business of certain types of financings or of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.  Because of changes in the nature and number of companies that rely on the exemption for real estate, as well as given that most of the guidance surrounding this exemption comes from “no action” letters issued by the SEC staff, the SEC on August 31, 2011 issued a concept release requesting comment directed to the scope and use of this exemption.  We do not know what action, if any, the SEC may take in response to the comments that it receives.  If we were to become regulated as an investment company under the Investment Company Act, either due to a change in the SEC’s interpretation of that Act or due to a significant change in the value and composition of our assets, we would be subject to extensive regulation and restrictions.  Among other restrictions, we would not be able to incur borrowings, which would limit our ability to fund certain investments.  Accordingly, either we would have to restructure our assets so that we would not be subject to the Investment Company Act or we would have to materially change the way we do business.  Either course of action could require that we sell substantial portions of our assets at a time when we might not otherwise want to do so, and we could incur significant losses as a result.  Any of these consequences could have a material adverse effect on our business, financial condition and results of operations.

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We have provided guarantees with respect to certain of the tax credit equity funds and properties and, if we were to become obligated to perform on those guarantees, our financial condition and results of operation could suffer.

Within our LIHTC business line, we have provided a limited guarantee of the expected tax credits to be generated by limited partnership investments held by our LIHTC funds.  We have also guaranteed minimum yields on investment to investors in guaranteed LIHTC funds in which we sold our GP interests and agreed to indemnify the purchaser of our GP interests in such funds from investor claims related to those guarantees.  We have also agreed to indemnify specific investors in certain non-guaranteed LIHTC funds related to the performance on certain LTPPs.  We continue to be obligated on our guarantees to the investors (or purchasers) in these funds and we could be required to make substantial payments with regard to these guarantees.  In order for the investors in guaranteed funds to benefit from low-income housing tax credits, the LTPPs in which these funds invest must operate affordable housing properties in compliance with a number of requirements in the Code and the regulations under it.  Failure to comply continuously with these requirements throughout a 15-year recapture period could result in loss of the right to those low-income housing tax credits, including recapture of credits that were already taken, potentially creating liability under our guarantees.  If we were to become obligated to perform on these guarantees, our financial condition and results of operation would be negatively impacted and the impact could be significant.

Our ability to maintain and grow our business would be adversely affected if we are unable to partner with institutional capital or if capital partners are unable to meet their funding commitments to us.  

We need to identify,  attract and obtain new capital partners in order to increase the number and size of funds or other businesses that we manage or will manage.  In addition, we are dependent on the funding commitments of our existing capital partners.  Our ability to partner with institutional capital depends on a number of factors, including certain factors that are outside our control.  There can be no assurances that we can find or secure commitments from new capital partners or that new or existing capital partners will meet their funding commitments to us.  The failure to obtain or maintain partners able to supply capital in sufficient amounts could result in a decrease in management and other fee revenue or a decline in the rate of growth of such fees, any of which could adversely impact our revenues, cash flows and financial condition.

The value of our International Operations investments and cash flows could fluctuate with changes in the relative value of the U.S. dollar and South African rand (“rand”) as well as with changes in benchmark interest rates.

The net assets and operations of IHS are denominated in various currencies, although predominantly in the South African rand.  In addition, our co-investments in SAWHF and IHS Residential Partners are denominated in rand and the majority of our co-investment in IHS Fund II is denominated in rand.  We do not hedge these foreign currency exposures and may experience losses as the value of our holdings in IHS, SAWHF, IHS Residential Partners and IHS Fund II fluctuates with changes in foreign exchange rates relative to the U.S. dollar.  In addition, both SAWHF and IHS Fund II SA borrow money in U.S. dollars from the Overseas Private Investment Corporation, resulting in those funds having U.S. dollar-to-rand currency risk.  SAWHF and IHS Fund II SA also enter into contracts in an effort to hedge foreign currency risk associated with its U.S. dollar-denominated debt.  These borrowings and hedges could adversely impact SAWHF’s and IHS Fund II SA’s results and the value of our investments.    Additionally, because there are financing arrangements in place for IHS-managed funds and the properties in which the funds have invested, the cost associated with the financing arrangements will change as the respective benchmark interest rate changes.  Furthermore, interest rates affect the availability of mortgage financing, which is important for the successful disposition of the funds’ investments.  These interest rate changes could adversely impact the value of our investments and cash flows in our International Operations. 

The value of investments and cash flows of our U.S. and International Operations are dependent on the quality of the management of the underlying properties.

The performance of properties in which the funds that we manage have invested or that secure our Bond Portfolio can be adversely impacted by inadequate property management.  To the extent property managers are not able to provide quality property management, the value of our investments and the cash flows from these investments will suffer.  IHS PM manages a substantial portion of the rental properties in funds that we manage in our International Operations, thereby giving us a significant degree of control over the quality of the management of the underlying properties.

Our International Operations are exposed to foreign government risk and stability risk.

Foreign governments have different laws and policies than the U.S. government.  They may change their laws and policies in ways that harm or limit our operations.  Such actions may include, but are not limited to, directly competing with us and nationalizing our operations without providing us with fair compensation.  They also may enact laws that make it more difficult for foreign companies to do business, thereby giving local competitors an advantage.  South Africa and other countries impose exchange controls that

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regulate how money enters and leaves the country.  These laws could be changed in ways that are adverse to us.  Our ability to anticipate, control or counteract these risks is very limited.

Foreign countries have social and economic stability risks that are different than the U.S.  South Africa has experienced some social unrest in the past and, should that re-occur or worsen, our operations and investments there could be adversely affected.

The application of international tax regimes could substantially affect our after tax results from International Operations.

Income we earn abroad is subject to an entirely different set of tax risks than income we earn domestically.  We are subject to the laws of the various jurisdictions in which we earn income, or through which our income must move in order for us to receive it in the U.S.  International treaties also govern these tax consequences.  If any of these laws or treaties changes, it could adversely impact our after-tax results.

Our International Operations are subject to additional real estate risks compared to that facing our U.S. Operations, including laws and customs related to real estate ownership and finance.

SAWHF, IHS Residential Partners, IHS Fund II and Transcend invest in real estate in South Africa.  While real estate-related risks we face in South Africa are similar to those we face when investing in U.S. real estate markets, there are legal and market differences that result in higher risks that could adversely impact our operations and results.  In addition, IHS Fund II has invested in real estate that is located in countries outside of South Africa.  In this regard, we have limited experience outside of South Africa and we may face additional risks that we may have not identified and which we are not sufficiently prepared to address.

Our International Operations include investments in funds that have investments in for-sale units, meaning adverse conditions in the mortgage market could affect the value of those units.

Investments made by SAWHF, IHS Residential Partner, and IHS Fund II include for-sale units.  If buyers have difficulty obtaining mortgages or other financing, unit sales and, therefore, the value of our interests in these ventures, could be adversely affected. 

We are at risk of key employee turnover.

We are vulnerable to key talent turnover and our business operations could suffer if we were unable to find suitable replacements on a timely basis.  This risk is greater than it otherwise would be because our employee headcount is relatively small.    

Our accounting policies and methods require management to make judgments and estimates about matters that are inherently uncertain.

Our  accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.  In addition, many of our accounting methods involve substantial use of models, which are based on assumptions, including assumptions about future events.  Our management must exercise judgment in applying many of these accounting policies and methods so that these policies and methods comply with generally accepted accounting principles in the United States (“GAAP”) and reflect management’s judgment of the most appropriate manner to report our financial condition and results of operations.  In some cases, management must select the appropriate accounting policy or method from two or more alternatives, any of which might be reasonable under the circumstances but might affect the amounts of assets, liabilities, revenues and expenses that we report.  See Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies” for a description of our significant accounting policies.

We have identified three of our accounting policies as critical to the presentation of our financial condition and results of operations.  These accounting policies are described in “MD&A—Critical Accounting Policies and Estimates.”  We believe these policies are critical because they require management to make particularly difficult, subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.  These judgments, by their nature, are based on current facts and circumstances.  Accordingly, actual results could differ from these estimates, possibly in the near term, and could have a material adverse effect on the consolidated financial statements.  Even a small change in an estimate can have a significant impact for a reporting period.  

Additionally, we have established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently.  These policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. 

Because of the uncertainty surrounding management’s judgments, assumptions and estimates pertaining to these matters, we cannot guarantee that we will not be required to adjust accounting policies or restate prior period financial statements.

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Risks Relating to Ownership of Our Shares

Our Rights Plan could depress our share price.

Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person.  By discouraging acquisitions of greater than a 4.9% stake in the Company, the Rights Plan might limit takeover opportunities and, as a result, could depress our share price.  At December 31, 2016, we had two shareholders with a greater than a 4.9% stake in the Company.  Additionally, two employees of the Company would each have a greater than 4.9% stake in the Company for purpose of the Rights Plan to the extent that they exercised their vested option awards as of December 31, 2016.  As of the filing date of this Report, the Board of Directors determined that a trigger event has not occurred for purposes of our Rights Plan.  

Our Board of Directors (“Board”) can issue an unlimited number of common or preferred shares, which could reduce our book value per common share and earnings per common share and the cash or other assets available for distribution per common share upon liquidation or otherwise.

Under our Operating Agreement, subject to Nasdaq Capital Market rules imposing some limitations on our ability to issue shares without shareholder approval, our Board can authorize the issuance of an unlimited number of common shares without obtaining shareholder approval.  Issuances of common shares could dilute the book value or the net income per common share or the cash per share available for distribution to common shareholders.  Our Board can also authorize, without any requirement of shareholder approval other than those imposed by Nasdaq Capital Market rules, the issuance of an unlimited number of shares with preferences over the common shares as to dividends, distributions on liquidation and other matters, other than voting.  This could reduce the book value and net earnings that would be allocable to our common shares and the cash or other assets that are available for distribution to our common shareholders either periodically or upon our liquidation.

Provisions of our Operating Agreement may discourage attempts to acquire us. 

Our Operating Agreement contains at least three groups of provisions that could have the effect of discouraging people from trying to acquire control of us.  Those provisions are:

The above provisions could deprive our shareholders of opportunities that might be attractive to many of them.

Our shares are thinly traded and, as a result, the price at which they trade may not reflect their full intrinsic value.

Although we are traded on Nasdaq Capital Market, our shares are thinly traded and we do not have analysts actively tracking and publishing opinions on the Company and our stock.  Additionally, when we repurchase our shares, the number of shares outstanding is reduced, which has the effect over time of further decreasing the trading volume of our shares.  Accordingly, the trading price of our shares may not reflect their full intrinsic value.   

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Item 1B.  Unresolved Staff Comments

None.

Item 2.   Properties

We do not own any of the real property where we conduct our business.  Our corporate headquarters is located in Baltimore, Maryland, where we occupy approximately 6,400 square feet of office space pursuant to a lease that expires in March 2024. Additionally, certain employees of our Energy Capital business line occupy approximately 1,469 square feet of office space pursuant to a lease that expires in February 2020.

Our International Operations are located in Johannesburg, South Africa where we occupy approximately 8,500 square feet of office space pursuant to a lease that expires in April 2020. 

Item 3.  Legal Proceedings

We are not, nor are any of our subsidiaries, a party to any material pending litigation or other legal proceedings.  Furthermore, to the best of our knowledge, we are not party to any threatened litigation or legal proceedings, which, in the opinion of management, individually or in the aggregate, would be likely to have a material adverse effect on our results of operations or financial condition.

Item 4.  Mine Safety Disclosures

Not applicable.



Part II

Item 5.  Market  for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 

Our common shares currently trade on the Nasdaq Capital Market under the symbol “MMAC.”

Table 2 shows the high and low sales prices for our common shares during the years ended December 31, 2016 and 2015 as reported by the Nasdaq Capital Market. 

Table 2:  Common Share Prices





Our Board has not declared a dividend since the fourth quarter of 2007.  It is unlikely that we will pay a dividend in the foreseeable future.

On March 8,  2017, there were approximately 369 holders of record of our common shares.

Performance Graph

Table 3 compares total shareholder return for the Company at December 31, 2016 to the Nasdaq Composite Total Return Index (“Nasdaq Composite Total Return”), Nasdaq US Benchmark Financial Services Total Return Index (“Nasdaq US Benchmark Fin Serv TR”) and a peer group (“Peer Group”) Index consisting of Encore Capital Group, Inc., FBR & Co., Harris & Harris Group, Inc., One Liberty Properties, Inc., Walker & Dunlop, Inc., and Whitestone REIT,  assuming that a $100 investment was made on December 31, 2011 and that all dividends paid since that date were reinvested.  The Company is included within the Nasdaq Composite Total Return index.  The Company selected the Nasdaq US Benchmark Financial Serv TR index because it represents a published industry index consisting of companies that operate in business segments similar to ours.  The Company selected the Peer Group companies because those companies operate within the same general industry or have similar market capitalization as the Company. 

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Table 3:  Comparison of 5 Year Cumulative Total Return (1) 









Recent Sales of Unregistered Securities

None for the three months ended December  31, 2016.

Use of Proceeds from Registered Securities

None for the three months ended December 31, 2016.

Issuer Purchases of Equity Securities

Table 4 provides information on the Company’s common share repurchases during the three months ended December 31, 2016.

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Table 4:  Common Shares Repurchases







Item 6.  Selected Financial Data

For five-year selected financial data, please refer to the “Consolidated Financial Highlights” table on page 4 of this Report.  





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Item 7:   Management’s Discussion and Analysis of Financial Condition and Results of Operations



SUMMARY OF FINANCIAL PERFORMANCE

___________________________________________________________________________________________________________

Net Worth

Common shareholders’ equity increased from $116.2 million at December  31, 2015 to $125.3 million at December  31, 2016.  This change was driven by $19.0 million in comprehensive income that is allocable to common shareholders and $9.8 million in other reductions in common shareholders’ equity. 

Diluted common shareholders’ equity (“Book Value”) per share increased to $20.75 at December  31, 2016, which represents an increase of 19.0%, or $3.32 per share of Book Value, compared to what we reported at December  31,  2015.  Most of this growth, or $2.98 per share, was attributable to comprehensive income from core operations and bond valuations while the balance, or $0.34 per share, was driven by purchases of common shares made by the Company at prices below its Book Value per share. 

Refer to “Consolidated Balance Sheet Analysis” for more information about changes in common shareholders’ equity and other components of our Consolidated Balance Sheets.

Comprehensive Income

We recognized comprehensive income that is allocable to common shareholders of $19.0 million during 2016, consisting of $42.4 million of net income that is allocable to common shareholders and $23.4 million of other comprehensive loss that is allocable to common shareholders.  In comparison, we recognized $29.8 million of comprehensive income allocable to common shareholders during 2015,  which consisted of $18.7 million of net income that is allocable to common shareholders and $11.1 million of other comprehensive income that is allocable to common shareholders. 

Refer to “Consolidated Results of Operations” for more information about changes in common shareholders’ equity that is attributable to changes in net income that is allocable to common shareholders.

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CONSOLIDATED BALANCE SHEET ANALYSIS

___________________________________________________________________________________________________________

This section provides an overview of changes in our assets, liabilities and equity and should be read together with our consolidated financial statements, including the accompanying notes to the financial statements.

Table 5 provides a balance sheet summary for the periods presented.  For presentational purposes, assets, liabilities and equity that are attributable to noncontrolling interest holders of CFVs are presented in Table 5 as separate line items because the Company generally has a minimal ownership interest in these consolidated entities.  For the periods presented, CFVs were comprised of consolidated property partnerships and certain LIHTC funds in which we guaranteed minimum yields on investment to investors and for which we agree to indemnify the purchaser of our GP interest in such funds from investor claims related to those guarantees.  See Notes to Consolidated Financial Statements –  Note 14,  “Consolidated Funds and Ventures,” for more information about CFVs.  

Table 5:  Balance Sheet Summary  



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Common Shareholders’ Equity

Table 6 summarizes the changes in common shareholders’ equity for the periods presented.

Table 6:  Changes in Common Shareholders’ Equity

Other Comprehensive (Loss) Income Allocable to Common Shareholders

Table 7 summarizes other comprehensive (loss) income that is allocable to common shareholders for the periods presented.

Table 7:  Other Comprehensive (Loss) Income Allocable to Common Shareholders





Other comprehensive (loss) income that is allocable to common shareholders for the year ended December 31, 2016, declined compared to amounts reported for the year ended December  31, 2015 primarily as a result of (i) the financial statement consolidation of two partnerships in 2016 that resulted in the derecognition of two investments in bonds and for which $14.4 million of unrealized holding gains were reclassified out of AOCI and into our Consolidated Statements of Operations and (ii) the foreclosure and sale in the first quarter of 2016 of a multifamily property that secured a nonperforming bond investment that resulted in a $11.4 million reclassification of unrealized bond holding gains out of AOCI and into our Consolidated Statements of Operations.

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Other comprehensive (loss) income that is allocable to common shareholders for the year ended December  31, 2015 declined compared to amounts reported for the year ended December  31, 2014 primarily as a result of the reinstatement of unrealized gains on bonds that were recognized in 2014 due to the deconsolidation of consolidated lower tier property partnerships.   

Other Changes in Common Shareholders’ Equity

Table 8 summarizes other changes in common shareholders’ equity for the periods presented.

Table 8:  Other Changes in Common Shareholders’ Equity



Other changes in common shareholders’ equity reported for the year ended December 31, 2016 increased compared to that reported for the year ended December 31, 2015 primarily as a result of an increase in the average price at which the Company repurchased its common shares during 2016.

Other changes in common shareholders’ equity reported for the year ended December  31, 2015 declined compared to that reported for the year ended December  31, 2014 primarily as a result of the Company’s purchase of an additional 13.2% interest in IHS during the second quarter of 2014.  As a result of this transaction, the Company transferred the cumulative IHS equity deficit balance of $2.8 million associated with the acquired shares from the noncontrolling shareholder to common shareholders’ equity.   



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CONSOLIDATED RESULTS OF OPERATIONS

___________________________________________________________________________________________________________

This section provides a comparative discussion of our Consolidated Results of Operations for the years ended December  31, 2016, 2015 and 2014 and should be read in conjunction with our financial statements, including the accompanying notes.  See “Critical Accounting Policies and Estimates” for more information concerning the most significant accounting policies and estimates applied in determining our results of operations.

Net Income Allocable to Common Shareholders

Table 9 summarizes net income allocable to common shareholders for the periods presented.

Table 9:  Net Income Allocable to Common Shareholders



Net Interest Income

Net interest income represents interest income earned on our investment in bonds, loans and other interest-earning assets less our cost of funding associated with short-term borrowings and long-term debt that we use to finance such assets.

Table 10 summarizes net interest income for the periods presented.

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Table 10:  Net Interest Income





Net interest income reported for the year ended December  31, 2016 declined compared to that reported for the year ended December 31, 2015 primarily as a result of (i) the sale or redemption of certain bond holdings and (ii) the full redemption of a bridge loan in the second quarter of 2015.  This decline was partially offset by an increase in interest income that was driven by an increase in the unpaid principal balance (“UPB”) of solar loans that were funded directly by the Company in 2016.     

Net interest income reported for the year ended December 31, 2015 declined compared to that reported for the year ended December 31, 2014 primarily as a result of $3.0 million of delinquent interest that was collected during 2014 in connection with two non-performing bonds that were restructured during 2014 and a  $3.2 million decline due to bond redemptions during 2015 and 2014.  These declines  were partially offset by (i) $1.9 million increase in interest income attributable to the deconsolidation of a partnership at the end of 2014, (ii) a $1.3 million increase in interest income that was attributable to both a bridge loan that we made to a tax credit asset manager during the fourth quarter of 2014 and two solar loans that were originated in the second quarter of 2015 and (iii) a $1.1 million decline in asset related interest expense that was driven by a termination in the second quarter of 2014 of $30.3 million of bond financings that carried a weighted-average yield of 7.8%.    

Fee and Other Income

Fee and Other Income includes income on our preferred stock investment, asset management fees and reimbursements as well as other miscellaneous income.

Table 11 summarizes fee and other income for the periods presented. 

Table 11:  Fee and Other Income

Fee and other income reported for the year ended December  31, 2016 declined compared to that reported for the year ended December 31, 2015 as a result of the redemption of the Company’s investment in preferred stock in the fourth quarter of 2015.    This decline was partially offset by an increase in asset management fees and reimbursements that was driven primarily by $1.5 million of property management fees earned by IHS PM and an increase of $0.8 million in management cost reimbursement fees that were earned from SCL and REL during 2016. 

Fee and other income reported for the year ended December  31, 2015 increased compared to that reported for the year ended December  31, 2014 primarily as a result of $2.3 million of asset management fees and reimbursements related to SAWHF that were

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recognized during 2015.  Asset management fees related to SAWHF were not recognized as fee and other income in 2014 because SAWHF was consolidated for financial reporting purposes.  Consequently, SAWHF asset management fee and reimbursements of $2.5 million were reported in 2014 as an allocation of income.  The reported increase in fee and other income was also driven in part by $0.6 million and $0.4 million of asset management fees and reimbursements relating to IHS PM and our Solar Ventures, respectively.    

Other Interest Expense

Other interest expense represents our cost of funding associated with senior and subordinated debt that does not finance our interest earning assets.

Table 12 summarizes other interest expense for the periods presented.

Table 12:  Other Interest Expense





Other interest expense reported for the year ended December  31, 2016 declined compared to that reported for the year ended December  31, 2015 primarily as a result of a decrease in our cost of funding associated with MMA Financial Holdings, Inc. (“MFH”) subordinated debt, which was restructured during the second quarter of 2015.  The reported decline in other interest expense was also partially attributable to the paydown of certain debt outstanding that was used by the Company to fund its investment in preferred stock, which was redeemed in full in the fourth quarter of 2015.      

Other interest expense reported for the year ended December 31, 2015 declined compared to that reported for the year ended December 31, 2014 primarily as a result of a decrease in our cost of funding associated with MFH subordinated debt, which was restructured during the second quarter of 2015.

Operating Expenses

Operating expenses include salaries and benefits, general and administrative expense, professional fees and other miscellaneous expenses.

Table 13 summarizes operating expenses for the periods presented.    

Table 13:  Operating Expenses



Operating expenses reported for the year ended December 31, 2016 declined compared to those reported for the year ended December 31, 2015 primarily due to non-recurring expenses that we recognized in 2015, which included  (i) a $1.6 million impairment loss that we recognized on our co-investment in SAWHF during the third quarter of 2015, (ii) a $1.2 million loan loss that we incurred in the fourth quarter of 2015 relating to IHS, (iii) the strengthening of the rand against the U.S. dollar during the twelve months ended December 31, 2016 and (iv)  $1.0 million of nonrecurring expenses that we incurred in the second quarter of 2015 relating to the restructuring of MFH subordinated debt.  The reported decline was partially offset by a  (i) $1.4 million increase in employee compensation for the full year ended December 31, 2016 and (ii) $0.8 million increase in audit-related fees.     

Operating expenses reported for the year ended December 31, 2015 increased compared to those reported for the year ended December 31, 2014 primarily due to a (i) $2.2 million increase in employee incentive compensation for the full year ended December

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31, 2015, (ii) $1.8 million increase in foreign exchange losses for the full year ended December 31, 2015 associated with the re-measurement into U.S. dollars of assets and liabilities that were denominated in a foreign currency and (iii) a $1.6 million impairment loss that we recognized on our co-investment in SAWHF during the third quarter of 2015. 

Net Gains on Bonds, Loans, Derivatives, Real Estate, Other Assets and Extinguishment of Liabilities

Net gains on bonds, loans, derivatives, real estate, other assets and extinguishment of liabilities includes unrealized gains or losses on loans, realized gains or losses associated with the sale of bonds and loans and the early redemption of bonds and loans.  Such amounts also include unrealized holding gains or losses associated with our derivative instruments that result from fair value adjustments.

Table 14 summarizes net gains on bonds, loans, derivatives, real estate, other assets and extinguishment of liabilities for the periods presented. 

Table 14:  Net Gains on Bonds, Loans, Derivatives, Real Estate, Other Assets and Extinguishment of Liabilities

Net gains on bonds, loans, derivatives, real estate, other assets and extinguishment of liabilities that were reported for the year ended December 31, 2016 declined compared to that reported for the year ended December 31, 2015 primarily due to a decline in gains from real estate and other assets, which, in large part, was driven by (i) $5.1 million of net gains on real estate associated with the sale of an affordable multifamily property during the second quarter of 2015, (ii) $4.3 million of net gains on real estate associated with the sale of undeveloped land during the third quarter of 2015, (iii) $5.2 million net gains generated by the redemption of the Company’s investment in preferred stock during the fourth quarter of 2015 and  (iv) $4.2 million net gains on extinguishment of liabilities relating to a working capital loan during the fourth quarter of 2015.  This decline was partially offset by an increase in (i) net gains on bonds that stemmed from the sale and redemption of one bond investment in the fourth quarter of 2016 that resulted in the recognition of a $10.0 million gain and (ii) $4.4 million in fair value adjustments that were recognized in the fourth quarter of 2016 in connection with interest rate derivatives that are used for economic hedging purposes.    

Net gains on assets, derivatives and extinguishments of liabilities that were reported for the year ended December 31, 2015 increased compared to that reported for the year ended December 31, 2014 primarily due to net gains associated with purchases and sales of real estate that included (i) a $1.3 million bargain purchase gain recognized in connection with the acquisition of real estate in the fourth quarter of 2015 that was reported as a business combination, (ii) a $4.3 million gain that was recognized in the third quarter of 2015 as a result of a sale of undeveloped land and (iii) a $5.6 million gain that was recognized during the second quarter of 2015 in connection with the sale of an affordable multifamily property.  The reported increase in such net gains was also driven in part by the recognition of a $5.2 million gain during the fourth quarter of 2015 that was generated by the redemption of the Company’s investment in preferred stock.

Equity in Income from Unconsolidated Funds and Ventures

Equity in income from unconsolidated funds and ventures includes our portion of the income (loss) associated with certain funds and ventures in which we have an equity interest.

Table 15 summarizes equity in income from unconsolidated funds and ventures for the periods presented.

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Table 15:  Equity in Income from Unconsolidated Funds and Ventures



Equity in income from unconsolidated funds and ventures that were reported for the year ended December  31, 2016 increased compared to that reported for the year ended December 31, 2015, primarily due to (i) an additional $4.7 million of equity in income from our Solar Ventures, (ii) $2.7 million of equity in income from the sale of real estate in the first quarter of 2016 that was owned by a partnership in which the Company held a 50% limited partner interest and (iii) $0.6 million of equity in income from the sale of real estate in the second quarter of 2016 that was owned by a partnership in which the Company held a 98.99% limited partner interest.

Equity in income from unconsolidated funds and ventures that were reported for the year ended December 31, 2015 declined compared to that reported for the year ended December 31, 2014, primarily due to $7.3 million of equity in income from an investment in a venture made during the fourth quarter of 2014.

Net Loss from CFVs Allocable to Common Shareholders

Table 16 allocates the net loss from CFVs to noncontrolling interests in CFVs and common shareholders for the periods presented.

Table 16:  Net Loss from CFVs Allocable to Common Shareholders





Table 17 further attributes the reported net loss from CFVs that is allocable to common shareholders for the periods presented. 

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Table 17:  Net Loss from CFVs Allocable to Common Shareholders





The net loss from CFVs allocable to common shareholders for the year ended December 31, 2016 was relatively unchanged compared to that reported for the year ended December 31, 2015.

The net loss from CFVs allocable to common shareholders for the year ended December 31, 2015 declined compared to that reported for the year ended December 31, 2014 primarily as a result of $15.5 million of net losses that were recognized in 2014 due to the deconsolidation of CFVs.  Given the Company’s sale of substantially all of its LIHTC asset management operations to a third-party tax credit asset manager in the fourth quarter of 2014 and other considerations, the Company concluded that it no longer controlled a non-profit and various LTPPs for reporting purposes and, therefore, deconsolidated such entities. 





   



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LIQUIDITY AND CAPITAL RESOURCES 

___________________________________________________________________________________________________________

Liquidity

Our principal sources of liquidity include: (1) cash and cash equivalents; (2) cash flows from operating activities; and (3) cash flows from investing activities. 

Summary of Cash Flows

At December  31, 2016, 2015 and 2014, we had unrestricted cash and cash equivalents of $45.5 million,  $21.8 million and $29.6 million, respectively.  We believe that cash generated from operating and investing activities, along with available cash and cash equivalents has been, and will continue to be, sufficient to fund our normal operating needs and meet our obligations as they become due.

During periods presented in this Report, we consolidated certain funds and ventures for financial reporting purposes and, therefore, cash flow activities for such funds and ventures were reflected in our Consolidated Statements of Cash Flows.  In this regard, cash balances of CFVs are classified as “Restricted cash” in our Consolidated Balance Sheets because the Company does not have legal title to such balances.

Table 18 provides a consolidated view of the change in cash and cash equivalents of the Company for the periods presented, though changes in such balances that are attributable to CFVs are separately identified in such disclosure.  

Changes in net cash flows that are reported in Tables 19,  20 and 21 are exclusive of changes in restricted cash balances of CFVs.



Table 18:  Net Increase (Decrease) in Cash and Cash Equivalents









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Operating Activities

Table 19 provides information about net cash flows provided by, or used in, operating activities for the periods presented.    Cash flows from operating activities include, but are not limited to, interest income on our investments and asset management fees. 

Table 19:  Net Cash Flows Associated With Operating Activities



Net cash flows provided by operating activities during the year ended December 31, 2016 increased by $16.4 million compared to those reported for the year ended December 31, 2015.  This increase was primarily attributable to distributions from investments in partnerships and a decline in originations of loans held for sale:





Net cash flows used in operating activities during the year ended December 31, 2015 increased by $4.3 million compared to those reported for the year ended December 31, 2014.  This increase was primarily attributable to originations of loans held for sale and salaries and benefits expense:





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Investing Activities

Table 20 provides information about net cash flows used in, or provided by, investing activities for the periods presented.    Cash flows from investing activities include, but are not limited to, principal payments and sales proceeds received on bonds and proceeds from the sale of real estate and other investments.  

Table 20:  Net Cash Flows Associated With Investing Activities





Net cash flows provided by investing activities during the year ended December 31, 2016 increased by $3.7 million compared to those reported for the year ended December 31, 2015.  This increase was primarily attributable to a decline in cash used for investments in property partnerships and real estate and an increase in principal payments and sales proceeds received on bonds and loans: 









Net cash flows provided by investing activities during the year ended December 31, 2015 decreased by $30.8 million compared to those reported for the year ended December 31, 2014.  This decrease was primarily attributable to an increase in cash used for investments in property partnerships and real estate and a decrease in proceeds from the sale of real estate and other investments:









Financing Activities

Table 21 provides information about net cash flows provided by, or used in, financing activities for the periods presented. 

Table 21:  Net Cash Flows Associated With Financing Activities



Net cash flows used in financing activities during the year ended December 31, 2016 decreased by $11.4 million compared to those reported for the year ended December 31, 2015.  This decrease was primarily attributable to $37.2 million of cash used for repayment of borrowings during 2015 compared to only $15.5 million that was used for the same purpose during 2016. These decreases were partially offset by a $9.0 million decrease in proceeds received from borrowing activity, which was primarily the result of a decrease in proceeds generated from total return swap financing arrangements entered into by the Company during 2016.

Net cash flows used in financing activities during the year ended December 31, 2015 decreased by $64.5 million compared to those reported for the year ended December 31, 2014.  This decrease was  primarily the result of a  $22.6 million increase in proceeds from borrowing activity and a $40.1 million decrease in repayment of borrowings.

Capital Resources

Our debt obligations primarily include liabilities that we recognized in connection with the execution of TRS agreements that we use to finance a portion of our investments in bonds, as well as subordinated debentures and other notes payable.  Each of the major types of our debt obligations is further discussed below.

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Table 22 summarizes the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at December 31, 2016.  See Notes to Consolidated Financial Statements –  Note 5, “Debt,” for more information about these contractual commitments.



Table 22:  Asset Related Debt and Other Debt





Notes Payable and Other Debt – Bond Related

These debt obligations pertain to bonds that are classified as available-for-sale and that were financed by the Company through TRS agreements.  See Notes to Consolidated Financial Statements – Note 5, “Debt,” for more information. 



Subordinated debt

At December  31, 2016, the Company had subordinated debt with a UPB of $120.5 million and carrying value of $129.2 million.  The weighted-average yield of this debt was 3.4%.  The carrying value of this debt includes $11.4 million of net premiums that will amortize into net interest income as a reduction to debt expense over the life of the debt.  These impacts will be offset by $2.7 million of unamortized debt issuance costs that will amortize as an increase to interest expense over the remaining life of the debt. 



Notes payable and other debt

At December  31, 2016, the Company had notes payable and other debt with a UPB of $18.8 million.  See Notes to Consolidated Financial Statements – Note 5, “Debt,” for more information.



Debt Related to CFVs

At December  31, 2016, debt related to CFVs included  $6.7 million of debt obligations associated with one of the Guaranteed Funds that we consolidate for reporting purposes.  At December  31, 2016, the carrying value of this debt, which is due on demand, equaled its UPB and its weighted-average effective interest rate is 5.75%. 

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The remaining $6.3 million of debt related to CFVs relates to two consolidated property partnerships and had a UPB of $5.4 million as of December  31, 2016.  This debt had a weighted-average effective interest rate at December  31, 2016 of 4.0% and has various maturity dates that run through April 1, 2027. 

Covenant Compliance and Debt Maturities

At December  31, 2016, the Company was in compliance with all covenants under its debt arrangements.   

Off-Balance Sheet Arrangements

The Company has guaranteed minimum yields on investment to investors in 11 Guaranteed Funds that are consolidated for reporting purposes, along with two additional Guaranteed Funds that are not consolidated for reporting purposes.  The Company has also agreed to make mandatory loans to TC Fund I for distribution to the fund investor in the event of certain tax credit shortfalls covered by a tax credit guarantee provided by the Company.  Refer to Notes to Consolidated Financial Statements – Note 8, “Guarantees and Collateral,” for more information about our guarantees and certain other contingent arrangements.

Other Contractual Commitments

The Company is committed to make additional capital contributions to one of the real estate partnerships in which it has an interest and to one of the funds that it manages through its International Operations.  Refer to Notes to Consolidated Financial Statements - Note 3, “Investments in Partnerships,” for information about these commitments.

The Company had no unfunded loan commitments as of December 31, 2016.  Refer to Notes to Consolidated Financial Statements - Note 4, “Other Assets.”

The Company uses derivative instruments for various purposes and that contingently obligate the Company in most cases to make payments to its counterparties.  Refer to Notes to Consolidated Financial Statement - Note 6, “Derivative Instruments,” for more information about these instruments.

The Company has four non-cancelable operating leases that expire in 2017, 2020 and 2024.  Refer to Notes to Consolidated Financial Statement - Note 9, “Commitments and Contingencies,” for more information about these commitments.

Table 23 summarizes, by maturity, our future cash obligations related to our long-term debt, operating leases and other material non-cancelable contractual obligations.



Table 23:  Contractual Obligations







Other Capital Resources

Common Shares

On December 1, 2016, the Board authorized a 2017 share repurchase program (“2017 Plan”) for up to 580,000 shares and the Company adopted a Rule 10b5-1 Plan implementing the Board’s authorization.  As of December 31, 2016, all previous authorizations had either expired or were completed, therefore only the 2017 Plan of up to 580,000 shares remains.    Between January 1, 2017 and March 8, 2017, the Company purchased 86,600 shares at an average price of $20.05.  Effective at the filing of this Report and until modified by further action by the Board, the maximum price at which management is authorized to purchase shares is $23.86 per share. 



Dividend Policy

The Board makes determinations regarding dividends based on management’s recommendation, which is based on an evaluation of a

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number of factors, including our common shareholders’ equity, business prospects and available cash.  We do not expect to pay a dividend for the foreseeable future.

Tax Benefits Rights Agreement

Effective  May 5, 2015, the Company adopted a Rights Plan designed to help preserve the Company’s NOLs.  In connection with adopting the Rights Plan, the Company declared a distribution of one right per common share to shareholders of record as of May 15, 2015.  The rights do not trade apart from the current common shares until the distribution date, as defined in the Rights Plan.  Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person.  The Rights Plan runs for a period of five years, or until the Board determines the plan is no longer required, whichever comes first. 

At December 31, 2016, we had two shareholders with a greater than a 4.9% stake in the Company.  Additionally, two employees of the Company would each have a greater than 4.9% stake in the Company for purposes of the Rights Plan to the extent that they exercised their vested option awards as of December 31, 2016.  The Board of Directors has determined that these holdings do not constitute a triggering event for purposes of our Rights Plan. 



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

___________________________________________________________________________________________________________

The preparation of our consolidated financial statements is based on the application of U.S. GAAP, which requires us to make certain estimates and assumptions that affect the reported amounts and classification of the amounts in our consolidated financial statements.  These estimates and assumptions require us to make difficult, complex and subjective judgments involving matters that are inherently uncertain.  We base our accounting estimates and assumptions on historical experience and on judgments that are believed to be reasonable under the circumstances known to us at the time.  Actual results could differ materially from these estimates.  We applied our critical accounting policies and estimation methods consistently in all material respects and for all periods presented, and have discussed those policies with our Audit Committee.



We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions.  Management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the Audit Committee of our Board of Directors.  See “Item 1A - Risk Factors” for a discussion of the risks associated with the need for management to make judgments and estimates in applying our accounting policies and methods.  We have identified three of our accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition.  These policies govern:

Valuation of Bonds

We classify and account for mortgage revenue bonds and other municipal bonds that we own as available-for-sale pursuant to ASC No. 320, “Investments – Debt and Equity Securities.”  Accordingly, we measure investments in bonds at fair value in our Consolidated Balance Sheets, with unrealized gains and losses included in “AOCI.” 

We measure the fair value of most of our performing bonds by calculating the net present value of their expected future cash flows using discount factors that reflect the market yield for such investments.  In this regard, discount factors reflect specific bond attributes such as the expected term of a bond, debt service coverage ratio, geographic location and bond size.  If observable, binding market quotes are available, we will estimate the fair value of our performing bonds based on such quoted prices.    

For non-performing bonds (i.e., defaulted bonds as well as certain non-defaulted bonds that we deem at risk of default in the near term), we measure fair value by discounting the property’s expected cash flows and residual proceeds using estimated discount and capitalization rates, less estimated selling costs.  However, the Company may measure fair value based on a sale agreement, a letter of intent to purchase, an appraisal or other indications of fair value as available. 

There are significant judgments and estimates associated with projecting bond or underlying collateral cash flows for non-performing bonds given that we are required to make assumptions about macroeconomic conditions, interest rates, local and regional real estate market conditions and individual property performance.  In addition, the determination of the discount rates applied to these cash flow forecasts involves significant judgments as to current credit spreads and investor return expectations.  At December 31, 2016, the average price of all bonds reported on the Consolidated Balance Sheets was approximately 101% of the UPB of that portfolio.

Consolidated Funds and Ventures

We have equity investments in partnerships and other entities that primarily hold or develop real estate.  In most cases our legal interest in these entities is minimal; however, we apply ASC No. 810, “Consolidation”  in order to determine if we need to consolidate any of these entities.  There is considerable judgment in assessing whether to consolidate an entity under these accounting principles.  Some of the criteria we are required to consider include:





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Income Taxes

We are a limited liability company that elected to be taxed as a corporation for income tax purposes.  All of our business activities, with the exception of our foreign investments and managing member interests in two remaining LIHTC Funds, are conducted by entities included in our consolidated corporate federal income tax return. 

ASC No. 740, “Income Taxes,” establishes financial accounting and reporting standards for the effect of income taxes.  The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current period and deferred tax assets and liabilities for future tax consequences of events that have been recognized in an entity's financial statements or tax returns.  Significant judgment is required in determining and evaluating income tax positions, including assessing the relative merits and risks of various tax treatments considering statutory, judicial and regulatory guidance available regarding the tax position.  We establish additional provisions for income taxes when there are certain tax positions that could be challenged and it is more likely than not these positions will not be sustained upon review by taxing authorities.  Judgment is also required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns as well as the recoverability of our deferred tax assets.  In assessing our ability to realize the benefit of our deferred tax assets and thereby measuring the required valuation allowance, we consider information such as forecasted earnings, future taxable income and tax planning strategies, all of which entail significant judgment. 

As of December 31, 2016, we had an estimated $400.9 million of federal net operating losses representing a significant potential asset of the Company, subject to a full valuation allowance as of that measurement date.  There are a number of risks associated with the potential ability of the Company to use the net operating losses, including: 1) change of control for the Company; 2) lack of taxable income generated before expiration of the carryforward period beginning in 2027; 3) potential challenges from tax authorities and 4) changes in tax laws.  On May 5, 2015, the Board adopted a Rights Plan to potentially mitigate the risk of a change of control event.  Although the Rights Plan is generally an effective deterrent against, it does not absolutely prevent, a change of control and it could be subject to challenge following a trigger event.  The Rights Plan will run for a period of five years, or until the Board determines the plan is no longer required, whichever comes first.

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ACCOUNTING AND REPORTING DEVELOPMENTS

___________________________________________________________________________________________________________

We identify and discuss the expected impact on our consolidated financial statements of recently issued accounting guidance in Notes to Consolidated Financial Statements – Note 1, “Summary of Significant Accounting Policies.”





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Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential for adverse changes in the value of the Company’s assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads.  We are exposed to certain market risks as part of our ongoing business operations that we measure and manage as further discussed below.

Sources of Market Risk

Interest-bearing assets and liabilities of the Company expose us to interest rate risk, which is the risk of loss in value or expected future earnings that may result from changes in interest rates.  For example, a portion of interest payments that we make in connection with our debt obligations are determined based upon variable rates of interest.  In this case, if interest rates were to increase, our required payments to service our variable rate debt obligations would increase and, therefore, negatively impact our earnings and cash flows.  Changes in interest rates, as well as changes in credit spreads, also affect the fair value measurement of interest bearing assets and liabilities.

Our exposure to market risk also includes the risk of changes in terminal capitalization rates, which impact the valuation of multifamily affordable properties that secure certain investments in our Bond Portfolio,  our direct real estate investments and real estate-related interests in our LIHTC business line that are dependent on the residual value of multifamily rental properties (although only our Bond Portfolio-related exposures are generally represented by market risk-sensitive instruments).  Refer to Items 1 and 1A of Part I of this Report for more information about our Bond Portfolio, our direct real estate investments and our real estate-related interests in our LIHTC business line. 

Our Bond Portfolio, which includes TRS agreements that are used to finance certain of our bond investments, is among our primary sources of market risk.  Our bond investments contractually entitle us to fixed rates of interest while TRS agreements that finance such investments require us to make interest payments to our counterparties that are based upon the Securities Industry and Financial Markets Association seven-day municipal swap rate (“SIFMA”) plus a spread.  The fair value of the Bond Portfolio is influenced both by the performance of underlying real estate assets (i.e., as a proxy for creditworthiness) and tax-exempt interest rates and credit spreads (i.e., generally as tax-exempt interest rates and/or credit spreads rise, bonds become less valuable).





In addition to the Bond Portfolio, we have other interest-bearing assets and liabilities that expose us to the risk of changes in interest rates and credit spreads, including originated loans, non-Bond Portfolio-related debt obligations and several TRS agreements that are used to finance other investments.  Non-Bond Portfolio debt obligations primarily include senior debt, subordinated debt and various liabilities that were recognized in connection with conveyances that failed to qualify as sales for reporting purposes (in Table 25 below, non-Bond Portfolio-related debt that finances interest-bearing assets is classified as “Asset Related Debt” while all other debt is classified as “Other Debt”).  At December 31, 2016, all of the Company’s loans that are recognized in the financial statements in this Report provide fixed rates of interest while approximately 24.0% of our non-Bond Portfolio-related borrowings (based on their unpaid principal balances) also bear a fixed rate of interest.  The balance of our non-Bond Portfolio debt obligations, or 76% of such arrangements as of December 31, 2016, require us to pay a variable rate of interest that are based upon three-month USD LIBOR and prime rate.  TRS that finance other investments (besides the Bond Portfolio) contractually entitle us to receive fixed rates of interest and require us to make interest payments to our counterparties that are based upon the three-month USD LIBOR rate plus a spread or the SIFMA seven-day municipal swap rate plus a spread. 

As further discussed in Item 1 of Part I of this Report, the Company also has equity investments in real estate partnerships, real estate funds and in REL.   These investments expose the Company to various types of market risk, but are not addressed herein because the Company accounts for these instruments using the equity method of accounting. Accordingly, the tables below do not reflect our indirect exposure to market risk affecting our equity investments.

Market Risk Management

We utilize interest rate swaps, interest rate basis swaps and interest rate caps to manage our exposure to changes in interest rates.  In this regard, we do not use interest rate derivative instruments for trading or speculative purposes.  Additionally, while the use of such instruments may mitigate a portion of our exposure to adverse changes in interest rates, certain of these transactions may limit our ability to receive benefits associated with favorable changes in interest rates of hedged debt obligations. 

Measurement of Market Risk

In Table 24, we measure the Bond Portfolio’s sensitivity to increases in market yields and terminal capitalization rates by measuring how its fair value would hypothetically change as a result of an instantaneous 100 basis point increase in the market yield and terminal capitalization rate assumptions that were used to measure the fair value of our Bond Portfolio as reported in our Consolidated Balance Sheets at December 31, 2016 and 2015.  In estimating such impacts, we also assumed that expected future cash flows and the credit

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quality associated with the Bond Portfolio remained constant relative to projections that were assumed in fair value measurements used to report carrying values in our Consolidated Balance Sheets at December 31, 2016 and 2015. 

The fair value sensitivity of the Bond Portfolio was calculated using internal models that require standard assumptions regarding market yields and other inputs that are used to measure the fair value of such instruments for financial reporting purposes.  Valuation assumptions are derived based on the characteristics of Bond Portfolio investments and other factors.  Refer to Notes to Consolidated Financial Statements – Note 7, “Fair Value” for more information about the methods we use to measure fair value.

Table 24 displays the change in fair value of the Bond Portfolio as measured on the last day of each period presented using the assumptions described above.

Table 24:  Exposure of the Bond Portfolio to Increases in Market Yields and Capitalization Rates





Table 25 provides information about the Company’s other financial instruments that are sensitive to changes in interest rates and other market risks.  For loans and debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates.  For interest rate swaps and caps, the table presents notional amounts and weighted-average interest rates or strike rates by contractual maturity dates.  Notional amounts are used to calculate the contractual cash flows to be exchanged under the contract.    Weighted-average effective interest rates associated with variable rate instruments are calculated based on spot rates at December 31, 2016.



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Table 25:  Other Financial Instruments That Expose the Company to Market Risks

















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Table 25:  Other Financial Instruments That Expose the Company to Market Risks –  (continued)



The fair value of financial instruments that is disclosed above in Table 24 is measured using methods and assumptions that are further discussed in Notes to Consolidated Financial Statements – Note 7, “Fair Value.”

Item 8.  Financial Statements and Supplementary Data

The consolidated financial statements of MMA Capital Management, LLC, together with the report thereon of KPMG LLP dated March 15, 2017, are in Item 15. Exhibits and Financial Statement Schedules at the end of this Report and are incorporated by reference herein.

Item 9.  Changes In and Disagreements With Accountants On Accounting and Financial Disclosure

None.

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Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings and submissions to the SEC under the Exchange Act is recorded, processed, and reported within the time periods specified in the SEC’s rules and forms.  Such controls include those designed to ensure that information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.

An evaluation was conducted under the supervision and with the participation of management, including the CEO and CFO, on the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) under the Exchange Act.  Based on this evaluation, the CEO and CFO concluded that due to the fact that remediation of material weaknesses in our internal control over financial reporting described in our 2015 Form 10-K has not been completed as described below, our disclosure controls and procedures were not effective as of December 31, 2016.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  It is a process that involves human diligence and compliance and is therefore subject to human error and misjudgment.  In general, evaluations of effectiveness for future periods are subject to risk as controls may become inadequate due to changes in conditions or the degree of compliance with key processes or procedures. 

A deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.  A material weakness is a deficiency, or a 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 financial statements will not be prevented or detected on a timely basis.

An evaluation was conducted under the supervision and with the participation of management, including our CEO and CFO, on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 based on criteria related to internal control over financial reporting described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework).  Based on this evaluation, management determined that because of the material weaknesses described below, the Company’s internal control over financial reporting was not effective as of December 31, 2016. 

As a result of this assessment, management concluded that the Company did not have adequately trained resources with assigned responsibility over the use of spreadsheets in the Company’s financial reporting processes and effective monitoring of control activities associated with the use of spreadsheets.  Additionally, the Company did not have restricted access controls over the spreadsheets, including appropriate security controls over the network where the spreadsheets were stored; program change controls over the functionality of the spreadsheets; and completeness and accuracy controls over the data and assumptions used in the spreadsheets.

As a consequence, the Company did not have effective process-level controls over the measurement and presentation of certain investments and related income, other assets and related income, other liabilities, and income taxes that were dependent upon the use of spreadsheets.  Certain of the Company’s reconciliation and management review controls over these accounts were ineffective because the Company did not assess the completeness and accuracy of information included within the spreadsheets.    

The control deficiencies described above resulted in immaterial errors in certain accounts in the Company’s preliminary financial statements that were corrected prior to the issuance of the Company’s consolidated financial statements, as well as resulted in an immaterial correction of an error that was disclosed in the Company’s Form 10-Q for the quarter ended March 31, 2016.    These control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis in the future and, therefore, we concluded that the deficiencies continue to represent material

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weaknesses in the Company’s internal control over financial reporting as of December  31, 2016 and the Company’s internal control over financial reporting was not effective as of December 31, 2016.  

The independent registered public accounting firm, KPMG LLP, has expressed an adverse report on the effectiveness of our internal control over financial reporting as of December 31, 2016, and their report is included on page 46 herein.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the fourth quarter of 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting as of December 31, 2016. 

Management’s Remediation Plan

In connection with the remediation plan that the Company established to address material weaknesses that were identified as of the assessment for December 31, 2015, we executed the following steps in 2016:











In 2017, the Company will sponsor additional targeted training to key personnel related to the use of, and monitoring of control activities associated with, spreadsheets that are used for financial reporting purposes.  Additionally, and as a continuation of the Company’s remediation plan that was established to address material weaknesses identified as of the assessment for December 31, 2015, the Company will execute the following steps in 2017: 







Although we expect that full implementation of this plan will result in the remediation of the Company’s material weaknesses, we cannot provide any assurance that these efforts will be successful, or that we will not identify additional control deficiencies in future periods.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

MMA Capital Management, LLC:

We have audited MMA Capital Management, LLC’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control ‑ Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  MMA Capital Management, LLC's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a 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 financial statements will not be prevented or detected on a timely basis.  Material weaknesses related to inadequately trained resources with assigned responsibility over the use of spreadsheets in the Company’s financial reporting processes; ineffective monitoring activities over controls associated with the use of spreadsheets; ineffective access and program change controls over the use of the spreadsheets; ineffective controls over the completeness and accuracy of the data and assumptions used in the spreadsheets; and ineffective process-level controls over the measurement and presentation of certain investments and related income, other assets and related income, other liabilities, and income taxes that were dependent upon the use of spreadsheets have been identified and included in management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MMA Capital Management, LLC and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the years in the three-year period ended December 31, 2016.  This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2016 consolidated financial statements, and this report does not affect our report dated March 15, 2017, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, MMA Capital Management, LLC has not maintained effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We do not express an opinion or any other form of assurance on management’s statements referring to corrective actions taken after December 31, 2016, relative to the aforementioned material weakness in internal control over financial reporting.

(signed) KPMG LLP

Baltimore, Maryland

March 15, 2017

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Item 9B.  Other Information

Not applicable.





PART III



Item 10.  Directors, Executive Officers and Corporate Governance

The Company has a Code of Ethics that applies to Officers, Employees and Directors and a Code of Ethics that applies to Senior Financial Officers, copies of which are available on the Company’s website at www.mmacapitalmanagement.com.

The remaining information required to be furnished by this Item 10 is contained in the Company’s Proxy Statement for its 2017 Annual Shareholders’ Meeting (hereinafter, the “Proxy Statement”) under the captions “Information about the Company’s Directors,” “Board of Directors Matters,” “Identification of Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.  The Company expects to file the Proxy Statement no later than April 30, 2017.

Item 11.  Executive Compensation

The information required to be furnished by this Item 11 is contained in the Proxy Statement under the headings “Board of Directors Matters” and “Executive Compensation” and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required to be furnished by this Item 12 is contained in the Proxy Statement under “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

The information required to be furnished by this Item 13 is contained in the Proxy Statement under the headings “Board of Directors Matters” and “Related Party and Affiliate Transactions” and is incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services

The information required to be furnished by this Item 14 is contained in the Proxy Statement under “Independent Registered Public Accounting Firm” and is incorporated herein by reference.



 







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PART IV



Item 15.  Exhibits and  Financial Statements Schedules



(1)  The following is a list of the consolidated financial statements included at the end of this Report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2016 and 2015

Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Equity for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014

Notes to Consolidated Financial Statements

(2)  Financial Statement Schedules:

Schedule II – Valuation and Qualifying Accounts (The information required is presented within the notes to the Consolidated Financial Statements)

(3) Exhibit Index

       See Exhibit Index immediately preceding the exhibits



Item 16.  Form 10-K Summary

Not included.