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Tiptree Financial Inc. Reports Financial Results for the Nine Months Ended September 30, 2013

  Tiptree Financial Inc. Reports Financial Results for the Nine Months Ended
                              September 30, 2013

PR Newswire

NEW YORK, Nov. 14, 2013

NEW YORK, Nov. 14, 2013 /PRNewswire/ --Tiptree Financial Inc. ("Tiptree",
"the Company" or "we") (NASDAQ: TIPT), today filed its Quarterly Report on
Form 10-Q and announced its financial results for the nine months ended
September 30, 2013.

Tiptree is a diversified holding company which conducts its operations through
its operating subsidiary Tiptree Operating Company, LLC ("Operating
Subsidiary"). We operate in four segments: insurance and insurance services,
specialty finance (including corporate, consumer and tax-exempt credit), asset
management and real estate. Tiptree is the sole managing member of, and owns
approximately 25% of, Operating Subsidiary. As the sole managing member of
Operating Subsidiary, Tiptree operates and controls all of the business and
affairs of Operating Subsidiary and its subsidiaries and consolidates the
financial results of Operating Subsidiary and its subsidiaries. Tiptree
Financial Partners L.P's ("TFP") ownership of approximately 75% of Operating
Subsidiary is reflected as a non-controlling interest in Tiptree's
consolidated financial statements. Tiptree's Class A common stock is traded on
Nasdaq and has both economic and voting rights; Tiptree's Class B common stock
is held by TFP and has voting but no economic rights.

  oEconomic Net Income of Operating Subsidiary for the nine months ended
    September 30, 2013 was $29.9 million. Economic Net Incomeavailable to
    Tiptree Class A stockholders for the nine months ended September 30, 2013
    was $6.9 million, or $0.67 per diluted Class A share, compared with an
    Economic Net Income of $5.7 million, or $0.55 per diluted Class A share,
    for the nine months ended September 30, 2012. Economic Net Income for the
    nine months ended September 30, 2013 was primarily driven by strong
    results in corporate credit, real estate, insurance and insurance services
    and asset management.
    
  oDilutive Tiptree Economic Book Value per Class A share was $9.98 at
    September 30, 2013, compared with Dilutive Tiptree Economic Book Value per
    Class A share of $9.30 at December 31, 2012.
    
  oGAAP net income of Operating Subsidiary for the nine months ended
    September 30, 2013 was $29 million. GAAP net income available to Tiptree
    Class A stockholders for the nine months ended September 30, 2013 was $6.6
    million, or $0.64 per diluted share, compared with GAAP net income
    available to Class A stockholders for the nine months ended September 30,
    2012 of $6.5 million, or $0.63 per diluted share. A reconciliation of
    Economic Net Income and Economic Book Value to reported GAAP results is
    attached.

The nine months ended September 30, 2013 have been a transformative period for
Tiptree. The following highlights certain developments during this period,
which are described in more detail in the Form 10-Q filed by Tiptree today.

  oContribution Transactions. We completed a transaction we refer to as the
    Contribution Transactions, creating Tiptree's current capital and
    ownership structure on July 1, 2013. TFP and Care Investment Trust Inc.
    (prior to the Contribution Transactions, "Care Inc.") each contributed
    substantially all of their assets to Operating Subsidiary in exchange for
    ownership in Operating Subsidiary.
    
  oAcquisitions and dispositions. We sold our membership interests in an
    entity that owned fourteen senior living facilities, which we refer to as
    the Bickford Portfolio, on June 28, 2013 for net cash of $44 million and a
    net gain of approximately $15.5 million. We purchased an aggregate of
    approximately 66.7% of the voting equity interests of Siena Capital
    Finance LLC ("Siena") for an aggregate of $10 million in two stages on
    April 2013 and July 2013. A capital contribution by another investor in
    Siena diluted our interest in Siena to approximately 62% in October 2013.
    We entered into a definitive agreement to make a $5 million loan to Luxury
    Mortgage Corp. ("Luxury") on April 2013. Half of the loan has been funded
    and the remainder will be funded upon regulatory approval and other
    closing conditions, whereupon we will receive approximately 67.5% of
    Luxury's common stock.
    
  oAsset Management Activity. Telos CLO 2013-3, Ltd. ("Telos 3") and Telos
    CLO 2013-4, Ltd. ("Telos 4") became effective on June 5, 2013 and October
    23, 2013, respectively. In anticipation of issuing CLO notes for Telos CLO
    2013-5, Ltd. ("Telos 5"), Telos entered into a $100 million warehouse
    credit agreement on August 6, 2013, which was increased to $140 million on
    September 25, 2013.
    
  oDebt Financing. Operating Subsidiary borrowed $50 million under a Credit
    Agreement entered into with Fortress Credit Corp. ("Fortress") on
    September 18, 2013. The Credit Agreement includes an option to borrow an
    additional $125 million, subject to satisfaction of certain customary
    conditions.
    
  oEquity Activity. Our Class A common stock has been trading on the Nasdaq
    Capital Market under the symbol "TIPT" since August 9, 2013. A
    registration statement facilitating public resales of approximately 7.2
    million shares of our Class A common stock owned by TFP prior to the
    Contribution Transactions and distributed to TFPlimited partners in
    redemption of partnership interests in TFPbecame effective on October 18,
    2013.

Tiptree's board of directors reviewed a variety of factors includingthe
attractive risk adjusted yields available on investment opportunities that the
Company is currently considering, and the relatively low year-to-date expected
tax obligationsof Operating Subsidiary's investors, and has unanimously
decided not to declare a dividend at this time.

Cautionary Statement Regarding Forward-Looking Statements

This release contains "forward-looking statements" which involve risks,
uncertainties and contingencies, many of which are beyond the Company's
control, which may cause actual results, performance, or achievements to
differ materially from anticipated results, performance, or achievements. All
statements contained in this release that are not clearly historical in nature
are forward-looking, and the words "anticipate," "believe," "estimate,"
"expect," "plan," "target," and similar expressions are generally intended to
identify forward-looking statements. Such forward-looking statements include,
but are not limited to, statements about the Company's plans, objectives,
expectations and intentions. The forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties and other
factors, many of which are beyond our control, are difficult to predict and
could cause actual results to differ materially from those expressed or
forecast in the forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including, but not limited to those described in
the section entitled "Risk Factors" in the Company's Quarterly Report on Form
10-Q, and as described in the Company's other filings with the Securities and
Exchange Commission ("SEC"). Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as to the date of this
release. The factors described therein are not necessarily all of the
important factors that could cause actual results or developments to differ
materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could affect our forward-looking
statements. Consequently, our actual performance could be materially different
from the results described or anticipated by our forward-looking statements.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Except as required by the federal securities
laws, we undertake no obligation to update any forward-looking statements.

Economic Net Income

Economic Net Income ("ENI") is a non-GAAP financial measure of profitability
which Tiptree uses to measure the performance of its core business.
Management believes that ENI reflects the nature and substance of the economic
results of Tiptree's businesses. Management also uses ENI as a measurement for
determining incentive compensation. In addition to the other adjustments
indicated in the table below, ENI includes the following adjustments: (i)
adjustment to results from real estate to eliminate non-cash items similar to
adjusted funds from operations ("AFFO") which is a non-GAAP financial measure
widely used in the real estate industry, (ii) in our insurance segment,
adjustment for fair value on available for sale securities, which is a
non-GAAP measure frequently used throughout the insurance industry, and (iii)
in our specialty finance segment, Variable Interest Entities ("VIEs"), such as
Collateralized Loan Obligations ("CLOs") are shown as if not consolidated.
Reconciliation of ENI to the most comparable GAAP measure is presented below.

ENI as used by Tiptree may not be comparable to similar measures presented by
other companies as it is a non-GAAP financial measure that is not based on a
comprehensive set of accounting rules or principles and therefore may be
defined differently by other companies. ENI should be considered in addition
to, not as a substitute for, financial measures determined in accordance with
GAAP.

The following table details the individual revenue and expense components of
the non-GAAP measure Economic Net Income for the periods indicated (unaudited
in thousands):

                                        Nine month period   Nine month period
                                        ended               ended

                                        September 30, 2013  September 30, 2012
Revenues:
Interest income                         $    408            $    396
Dividend/distribution income            15,653              15,430
Realized gains (losses)                 (1,015)             414
Unrealized gains                        20,273              16,589
Management fee income                   12,281              3,351
Total revenues                          $    47,600         $    36,180
Expenses:
Compensation expense                    9,839               3,096
Distribution expense (convertible       1,747               1,979
preferred)
Interest expense                        1,496               933
Professional fees and other             4,633               3,081
Total expense                           $    17,715         $    9,089
Economic Net Income (loss) before
management fee expenses and waivers     $    29,885         $    27,091
and incentive allocation
Less: Management fee expenses (1)       —                   1,996
Less: Management fee expenses waived    —                   (1,066)
(1)
Economic Net Income before incentive    29,885              26,161
allocation
Less: Incentive allocation (1)          —                   3,459
Economic Net Income of Operating        29,885              22,702
Subsidiary
Less: Economic net income attributable  $    22,450         $    17,052
to TFP
Economic Net Income of Tiptree before   7,435               5,650
tax provision
Less: Tax provision attributable to    $    567            $    —
Tiptree
Economic Net Income of Tiptree          $    6,868          $    5,650

(1) Following TFP's acquisition of TAMCO in June 2012 described in Note 1 to
the financial statements, TAMCO no longer pays management or incentive fees.

Reconciliation of GAAP Book Value to Economic Book Value

Economic Book Value ("EBV") is a non-GAAP financial measure which Tiptree uses
to evaluate the performance of its core business. Management believes that EBV
provides greater transparency and enhanced visibility into the underlying
profitability drivers of our business and provides a useful, alternative view
of the economic results of Tiptree's businesses. EBV includes the following
adjustments: (i) reversal of GAAP value for TAMCO and CLO VIEs and replacement
with fair value, (ii) addition of life to date AFFO adjustments for real
estate operations, (iii) reclassification of convertible preferred
distributions to expense and (iv), foreign exchange timing adjustment.
Reconciliation of EBV to the most comparable GAAP measure is presented below.

EBV as used by Tiptree may not be comparable to similar measures presented by
other companies as it is a non-GAAP financial measure that is not based on a
comprehensive set of accounting rules or principles and therefore may be
defined differently by other companies. EBV should be considered in addition
to, not as a substitute for, financial measures determined in accordance with
GAAP. The following is a reconciliation of GAAP book value attributable to
Tiptree to EBV as of September 30, 2013 and December 31, 2012 (in thousands
except share data):

                                         September 30, 2013  December 31, 2012
GAAP Net Assets to Tiptree Class A       $    114,234        $    108,357
Stockholders
Less cash and cash equivalents held      3,884               4,089
directly at Tiptree
Plus portion of NCI held by TFP          335,765             315,640
GAAP Net Assets of Operating Subsidiary  446,115             419,908
Reversal of consolidation of TAMCO       (146,373)           (120,513)
(including VIEs)(1):
Fair values of CLOs (2)                  63,173              30,737
Value of TAMCO (3)                       57,661              56,353
Adjustments to results from real estate  1,857               5,603
operations (4)
TFP convertible preferred reclass of     —                   (810)
distributions to expense (5)
Foreign exchange reserve (6)             —                   (1,174)
Economic Operating Subsidiary Net        $    422,433        $    390,104
Assets (before dilutive adjustments)
Dilutive adjustments (7)                 25,894              25,894
Economic Operating Subsidiary Net        $    448,327        $    415,998
Assets (after dilutive adjustments)
Basic Units outstanding (8)              41,229              41,049
Dilutive Unit adjustments (7)            3,690               3,685
Dilutive Economic Operating Subsidiary   44,919              44,734
Units Outstanding
Basic Economic Book Value Per Unit (9)   $    10.25          $    9.50
Dilutive Economic Book Value Per Unit    $    9.98           $    9.30
(9)
Tiptree Class A Economic Book Value
Tiptree Class A shares outstanding       10,260              10,226
Basic Economic Tiptree Book Value Per    $    10.25          $    9.50
Class A Share
Dilutive Economic Tiptree Book Value     $    9.98           $    9.30
Per Class A Share

(1) Under GAAP, Tiptree is required to consolidate all of the assets and
liabilities of the VIEs managed by TAMCO on Tiptree's balance sheet regardless
of Tiptree's economic interest. See Note 2(c) to the consolidated financial
statements. Adjustment is reversal of consolidation of TAMCO and VIEs.
(2) Adjustment is to include the fair value of our ownership position in the
VIEs which has been reversed as described in note (1) above.
(3) Adjustment to value TAMCO at the lower of cost and market. The December
31, 2012 amount reflects Tiptree's initial valuation of the purchase price
based on the March 31, 2012 value of partnership units issued in consideration
for TAMCO. The September 30, 2013 amount reflects Tiptree's final valuation of
the purchase price based on the June 30, 2012 value of partnership units
issued in consideration for TAMCO.
(4) Adjustments to results from real estate operations reverses the amounts,
since inception, related to the effects of straight lining lease revenue,
expenses associated with depreciation and amortization , certain transaction
expenses, non-cash transactions expenses, non-cash equity compensation
expenses, other non-cash charges, and incentive compensation adjustment for
unconsolidated partnerships and joint ventures.
(5) Convertible preferred distribution was reclassified as expense for
purposes of ENI. This adjustment conforms the reclassification for EBV
purposes.
(6) A reserve was established for EBV purposes as of December 31, 2012
reflecting a timing difference relative to GAAP recognition of yen foreign
exchange. Such reserve was subsequently reversed.
(7) Adjustments include the proceeds that would be received by Operating
Subsidiary and the units issued assuming exercise of all outstanding warrants.
(8) Excludes 6,474 units issued in respect of shares of Class A common stock
to directors of Tiptree as part of their annual retainer.
(9) As a result of the Contribution Transactions,Operating Subsidiary is
owned approximately 25% by Tiptree and approximately 75% by TFP. Tiptree's
ownership is equal to the number of shares of Class A common stock and
pursuant to Operating Subsidiary's limited liability agreement this ratio will
remain 1:1. TFP's ownership is equal to 2.798 times the number of TFP
partnership units outstanding and this ratio is expected to remain 2.798:1.
There were 11,068 and 11,016 partnership units outstanding as of September 30,
2013 and December 31, 2012, respectively. The basic EBV per partnership unit
was $28.68 and $26.59 as of September 30, 2013 and December 31, 2012,
respectively. The diluted EBV per partnership unit was $27.92 and $26.02 as of
September 30, 2013 and December 31, 2012, respectively.

Reconciliation of GAAP Net Income to Economic Net Income

The following is a reconciliation of GAAP Net Income attributable to Tiptree
to ENI for the nine month periods ended September 30, 2013 and 2012 (in
thousands):

                                          Nine month period Nine month period

                                          ended September   ended September

                                          30, 2013          30, 2012
GAAP Net Income of Tiptree                $    6,563        $    6,508
Plus: Tax provision attributable to      567               —
Tiptree
Plus: Portion of NCI held by TFP         21,589            19,611
GAAP net income of Operating Subsidiary   $    28,719       $    26,119
Adjustments:
Adjustments to results from real estate   (3,758)           2,121
operations (1)
Effect of change in majority ownership of (1,673)           460
subsidiaries (2)
Fair value adjustments to carrying value  939               6,385
(3)
Reversal of VIEs net losses (gains)       6,231             (3,726)
attributable to TFP (4)
Reversal of TAMCO net gains for periods   —                 (6,560)
prior to acquisition of TAMCO (5)
TFP convertible preferred reclass of      (1,747)           (1,978)
distributions to expense (6)
Foreign exchange reserve (7)              1,174             —
Amortization of start-up expenses (8)     —                 (119)
Economic Net Income of Operating          29,885            22,702
Subsidiary
Less: Economic net income attributable to 22,450            17,052
TFP
Economic Net Income of Tiptree before tax 7,435             5,650
provision
Less: Tax provision attributable to      567               —
Tiptree
Economic Net Income of Tiptree            $    6,868        $    5,650

(1) Adjustments to results from real estate operations includes the effects of
straight lining lease revenue, expenses associated with depreciation and
amortization, certain transaction expenses, non-cash equity compensation
expenses, other non-cash charges, and incentive compensation adjustments for
unconsolidated partnerships and joint ventures.
(2) Effect of change in majority ownership of subsidiaries is the dilutive
effect of Care Inc.'s issuance of shares related to the Contribution
Transactions and stock-based compensation, the effect of Tiptree's increased
ownership of Philadelphia Financial due to accretion of preferred shares, and
the increase in ownership of Siena.
(3) Adjustment is to account at fair value the CLO subordinated notes held by
Tiptree and PFG's available-for-sale securities. Fair values are obtained from
an independent third party pricing source.
(4) Reversal of VIEs net losses/(gains) attributable to Tiptree (see
reconciliation table below in thousands):



         Nine month period
         ended

         September 30, 2013

         
         Tiptree pro rata
         portion of                Net Income (net of 1%      Tiptree's
                                   NCI)                       ownership %
         Net Income
Telos 1  $     (18,262)                $    (18,079)                7.11%
Telos 2            (5,977)                      (5,917)       95.45%
Telos 3            1,441                        1,427         19.79%
Telos 4            563                          557           71.08%
Total    $     (22,235)                $    (22,012)
         Nine month period
         ended

         September 30, 2012

         
         Tiptree pro rata
         portion of                Net Income (net of 1%      Tiptree's
                                   NCI)                       ownership %
         Net Income
Telos 1  $     2,849                   $    2,821                   7.11%
Telos 2            3,731                        3,694         95.45%
Total    $     6,580                   $    6,515

(5) The purchase of TAMCO on June 30, 2012 was accounted for as a combination
of entities under common control. As a result, the assets and liabilities of
TAMCO were presented as if TAMCO had been consolidated by Tiptree on January
1, 2010. For non-controlling interest, we are reversing the effect of this
recasting of financial information for prior periods.
(6) Convertible preferred distribution reclassified as expense for purposes of
ENI so as to reflect a cost of capital charge for outstanding convertible
preferred. This class automatically converted to common shares effective July
1, 2013.
(7) Reflects the timing difference on the recognition of yen exposure GAAP
versus ENI.
(8) Amortization of expenses associated with the start-up of Tiptree in 2007.
The amortization period ended on June 30, 2012.



TIPTREE FINANCIAL INC.
AND SUBSIDIARIES

Consolidated Balance Sheet (Unaudited)

(in thousands, except share and per share data)
                                         September30, 2013  December31, 2012
Assets
Cash and cash equivalents –              $   123,721         $   88,563
unrestricted
Cash and cash equivalents – restricted   34,210              20,748
Due from separate accounts               2,467               2,128
Investments in trading securities, at    39,333              59,982
fair value
Investments in available for sale
securities, at fair value (amortized     17,721              16,303
cost: $17,546 and $15,693 in 2013 and
2012, respectively)
Investments in loans, at fair value      128,467             20,423
Loans owned, at amortized cost – net of  32,443              5,467
allowance
Investments in partially-owned entities  11,075              8,388
Derivative financial instruments, at     2                   834
fair value
Due from brokers, dealers, and trustees  247                 8,539
Real estate                              62,492              118,827
Reinsurance receivables                  9,080               8,802
Management fee receivables               255                 249
Policy loans                             104,875             99,123
Insurance policies and contracts         39,809              41,379
acquired
Deferred policy acquisition costs        4,543               3,878
Separate account assets                  4,353,490           4,035,053
Deferred tax assets                      4,834               5,342
Notes receivable                         6,071               —
Accrued interest and dividends           1,048               1,642
receivable
Intangible assets                        115,286             121,033
Goodwill                                 4,243               3,088
Assets of consolidated CLOs              1,491,744           851,660
Other assets                             16,777              12,351
Total assets                             $   6,604,233       $   5,533,802
Liabilities and Stockholders' Equity
Liabilities:
Derivative financial instruments, at     $   —               $   3,172
fair value
U.S. Treasuries, short position          18,945              20,175
Mortgage notes payable                   33,254              95,232
Notes payable                            146,500             100,416
Loans payable                            58,749              —
Policy liabilities                       114,930             108,868
Separate account liabilities             4,353,490           4,035,053
Due to brokers, dealers and trustees     47,120              —
Accrued interest payable                 293                 420
Liabilities of consolidated CLOs         1,250,931           620,310
Other liabilities and accrued expenses   24,243              14,568
Total liabilities                        $   6,048,455       $   4,998,214
Commitments and contingencies
Stockholders' Equity:
Preferred stock: $0.001 par value,
100,000,000 shares authorized,           $   —               $   —

none issued or outstanding
Common stock - Class A: $0.001 par
value, 200,000,000 shares

authorized, 10,260,379 and 10,226,250   11                  11
shares issued and outstanding

respectively
Common stock - Class B: $0.001 par
value, 50,000,000 shares

authorized, 30,968,877 and 0 shares      31                  —
issued and outstanding

respectively
Additional paid-in capital               97,250              96,144
Accumulated other comprehensive income   290                 311
Retained earnings                        16,652              11,892
Total stockholders' equity of Tiptree    114,234             108,358
Financial Inc.
Non-controlling interest                 354,667             324,595
Appropriated retained earnings of        86,877              102,635
consolidated TAMCO
Total stockholders' equity               555,778             535,588
Total liabilities and stockholders'      $   6,604,233       $   5,533,802
equity



TIPTREE FINANCIAL INC.
AND SUBSIDIARIES

Summary Consolidated Statements of Operations (unaudited in thousands)
                     Three month    Three month     Nine month    Nine month

                     period ended   period ended    period ended  period ended

                     September 30,  September 30,   September     September
                                                    30,           30,
                     2013           2012
                                                    2013          2012
Revenues:
Net realized
(losses) gains and
change in
unrealized
appreciation
(depreciation) on
investments:
Net realized gains   $   669        $   620         $   (770)     $   926
(losses)
Change in
unrealized           5,314          1,816           4,227         9,186
appreciation
Net realized and     5,983          2,436           3,457         10,112
unrealized gains
Investment income:
Interest income      3,916          2,317           11,131        7,498
Separate account
and administrative   18,286         15,372          53,192        25,119
service fees
Rental revenue       1,363          429             3,279         1,254
Income attributable
to consolidated      11,256         23,804          33,475        50,420
CLOs
Other income         325            734             701           2,289
Total investment     35,146         42,656          101,778       86,580
income
Total net realized
and unrealized
gains and            41,129         45,092          105,235       96,692

 investment
income
Expenses:
Interest expense     4,110          3,348           12,008        4,416
Payroll expense      8,741          7,448           26,277        12,746
Professional fees    2,252          4,755           6,204         9,179
Change in future     1,189          1,047           3,502         3,042
policy benefits
Mortality expenses   2,633          2,542           7,885         7,338
Commission expense   631            496             1,805         1,489
Depreciation and
amortization         1,215          593             3,382         1,527
expenses
Expenses
attributable to the  12,783         6,183           34,021        25,190
consolidated CLOs
Other expenses       4,240          1,153           10,722        4,922
Total expenses       37,794         27,565          105,806       69,849
Income before taxes
from continuing      3,335          17,527          (571)         26,843
operations
Provision for        1,434          735             4,549         162
income taxes
Income from
continuing           1,901          16,792          (5,120)       26,681
operations
Discontinued
operations:
Gain on sale of
Bickford portfolio,  —              —               15,463        —
net
Income from
discontinued         —              721             1,647         2,294
operations, net
Provision for        —              —               —             —
income taxes
Discontinued         —              721             17,110        2,294
Operations, net
Net income           1,901          17,513          11,990        28,975
Less net income
attributable to the  7,008          9,485           21,185        19,652
noncontrolling
interest
Less net (loss)
income attributable
to the VIE           (6,937)        4,939           (15,758)      2,815
subordinated
noteholders
Net income
available to common  $   1,830      $   3,089       $   6,563     $   6,508
stockholders



SOURCE Tiptree Financial Inc.

Contact: (212) 446-1400, ir@tiptreefinancial.com
 
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