E
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

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

For the Quarterly period ended June 30, 2014
OR

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

For the transition period from to
Commission File Number: 001-33549
Tiptree Financial Inc.
(Exact name of Registrant as Specified in Its Charter)

Maryland | 38-3754322
(State or Other Jurisdiction of | (IRS Employer
Incorporation of Organization) | Identification No.)
780 Third Avenue, 21st Floor, New York, New York | 10017
(Address of Principal Executive Offices) | (Zip Code)

(212) 446-1400
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 12, 2014, there were 21,720,761 shares, par value $0.001, of the registrant’s Class A common stock outstanding and 19,871,939 shares, par value $0.001, of the registrant’s Class B common stock outstanding.

Tiptree Financial Inc.
INDEX

PART I. Financial Information | 1
Item 1. Financial Statements (Unaudited) | 1
Consolidated Balance Sheets for June 30, 2014 and December 31, 2013 | 2
Consolidated Statements of Operations for the three and six month periods ended June 30, 2014 and 2013 | 4
Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2014 and 2013 | 7
Consolidated Statement of Changes in Stockholders' Equity for the period ended June 30, 2014 | 8
Consolidated Statements of Cash Flows for the six month periods ended June 30, 2014 and 2013 | 9
Notes to Consolidated Financial Statements | 11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 45
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 73
Item 4. Controls and Procedures | 73
PART II. Other Information | 73
Item 1. Legal Proceedings | 73
Item 1A. Risk Factors | 73
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 73
Item 3. Defaults Upon Senior Securities | 73
Item 4. Mine Safety Disclosures | 73
Item 5. Other Information | 73
Item 6. Exhibits, Financial Statement Schedules | 73
Signatures | 74

PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Financial Statements Introductory Note
Tiptree Financial Inc. (“Tiptree”) is a holding company that is the sole managing member, and owns approximately 25%, of Tiptree Operating Company, LLC (“Operating Company”). As the sole managing member of Operating Company, Tiptree operates and controls all of the business and affairs of Operating Company and its subsidiaries and consolidates the financial results of Operating Company and its subsidiaries. The ownership by Tiptree Financial Partners, L.P. (“TFP”) of approximately 75% of Operating Company is reflected as a non-controlling interest in Tiptree’s consolidated financial statements. See “Overview” section of Management’s Discussion and Analysis and Notes 1,13 and 19 to the consolidated financial statements for further discussion of Tiptree’s capital and ownership structure.
1

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)

| (Unaudited) |  |
| June 30, 2014 |  | December 31, 2013
Assets |  |  |
Cash and cash equivalents – unrestricted | $ | 122,050 |  |  | $ | 120,557 |
Cash and cash equivalents – restricted | 22,796 |  |  | 26,395 |
Trading investments, at fair value | 34,129 |  |  | 35,991 |
Investments in available for sale securities, at fair value (amortized cost: $17,669 and $17,708 in 2014 and 2013, respectively) | 17,952 |  |  | 17,763 |
Loans held for sale, at fair value ($24,833 pledged as collateral at June 30, 2014 ) | 25,104 |  |  | — |
Investments in loans, at fair value | 122,138 |  |  | 171,087 |
Loans owned, at amortized cost – net of allowance | 55,003 |  |  | 40,260 |
Investments in partially-owned entities | 8,691 |  |  | 9,972 |
Real estate | 105,224 |  |  | 105,061 |
Policy loans | 92,711 |  |  | 102,147 |
Deferred tax assets | 5,327 |  |  | 3,310 |
Intangible assets | 153,246 |  |  | 154,695 |
Goodwill | 4,617 |  |  | 4,294 |
Other assets | 51,166 |  |  | 49,201 |
Separate account assets | 4,799,568 |  |  | 4,625,099 |
Assets of consolidated CLOs | 1,758,909 |  |  | 1,414,616 |
Total assets | $ | 7,378,631 |  |  | $ | 6,880,448 |
Liabilities and Stockholders’ Equity |  |  |
Liabilities: |  |  |
Derivative financial instruments, at fair value | $ | 1,517 |  |  | $ | 598 |
U.S. Treasuries, short position | 19,254 |  |  | 18,493 |
Debt | 285,706 |  |  | 360,609 |
Policy liabilities | 102,882 |  |  | 112,358 |
Due to brokers, dealers and trustees | 71,068 |  |  | 8,193 |
Other liabilities and accrued expenses | 15,264 |  |  | 13,636 |
Separate account liabilities | 4,799,568 |  |  | 4,625,099 |
Liabilities of consolidated CLOs | 1,522,093 |  |  | 1,175,606 |
Total liabilities | 6,817,352 |  |  | 6,314,592 |
Commitment and contingent liabilities |  |  |
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, 10,617,947 and 10,556,390 shares issued and outstanding, respectively | 11 |  |  | 11 |
Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 30,968,877 and 30,968,877 shares issued and outstanding, respectively | 31 |  |  | 31 |
Additional paid-in capital | 101,586 |  |  | 100,903 |
Accumulated other comprehensive income | 172 |  |  | 33 |
Retained earnings | 21,029 |  |  | 18,933 |
Total stockholders’ equity of Tiptree Financial Inc. | 122,829 |  |  | 119,911 |

2

Non-controlling interest | 362,046 |  |  | 361,354 |
Appropriated retained earnings of consolidated TAMCO | 76,404 |  |  | 84,591 |
Total stockholders’ equity | 561,279 |  |  | 565,856 |
Total liabilities and stockholders’ equity | $ | 7,378,631 |  |  | $ | 6,880,448 |

See accompanying notes to consolidated financial statements.
3

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)

|  | Three months ended June 30, |  | Six months ended June 30,
|  | 2014 |  | 2013 |  | 2014 |  | 2013
Realized and unrealized gains: |  |  |  |  |  |  |  |
Net realized (loss) gain on investments |  | $ | (1,044 | ) |  | $ | (1,593 | ) |  | $ | (902 | ) |  | $ | (1,439 | )
Change in unrealized (depreciation) appreciation on investments |  | (227 | ) |  | (3,058 | ) |  | 289 |  |  | (2,500 | )
Income from investments in partially owned entities |  | 336 |  |  | 1,324 |  |  | 680 |  |  | 1,413 |
Net realized and unrealized (loss) gain |  | (935 | ) |  | (3,327 | ) |  | 67 |  |  | (2,526 | )
Investment income: |  |  |  |  |  |  |  |
Interest income |  | 4,938 |  |  | 4,188 |  |  | 10,301 |  |  | 7,215 |
Separate account fees |  | 5,525 |  |  | 5,504 |  |  | 11,012 |  |  | 10,810 |
Administrative service fees |  | 12,589 |  |  | 12,165 |  |  | 24,941 |  |  | 24,096 |
Rental revenue |  | 4,393 |  |  | 1,094 |  |  | 8,839 |  |  | 1,916 |
Gain on sale of loans held for sale, net |  | 1,782 |  |  | — |  |  | 2,734 |  |  | — |
Other income |  | 1,137 |  |  | 158 |  |  | 1,867 |  |  | 376 |
Total investment income |  | 30,364 |  |  | 23,109 |  |  | 59,694 |  |  | 44,413 |
Total net realized and unrealized gains and investment income |  | $ | 29,429 |  |  | $ | 19,782 |  |  | $ | 59,761 |  |  | $ | 41,887 |

4

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)

|  | Three months ended June 30, |  | Six months ended June 30,
|  | 2014 |  | 2013 |  | 2014 |  | 2013
Expenses: |  |  |  |  |  |  |  |
Interest expense |  | $ | 6,259 |  |  | $ | 4,063 |  |  | $ | 12,221 |  |  | $ | 7,898 |
Payroll expense |  | 12,513 |  |  | 8,896 |  |  | 23,083 |  |  | 17,524 |
Professional fees |  | 2,824 |  |  | 2,580 |  |  | 3,914 |  |  | 3,952 |
Change in future policy benefits |  | 1,072 |  |  | 1,196 |  |  | 2,197 |  |  | 2,313 |
Mortality expenses |  | 2,583 |  |  | 2,638 |  |  | 5,225 |  |  | 5,252 |
Commission expense |  | 174 |  |  | 619 |  |  | 1,158 |  |  | 1,174 |
Depreciation and amortization expenses |  | 1,803 |  |  | 1,223 |  |  | 3,366 |  |  | 2,166 |
Other expenses |  | 3,901 |  |  | 3,021 |  |  | 10,057 |  |  | 6,495 |
Total expenses |  | 31,129 |  |  | 24,236 |  |  | 61,221 |  |  | 46,774 |
Net (loss) income before taxes and income attributable to consolidated CLOs from continuing operations |  | (1,700 | ) |  | (4,454 | ) |  | (1,460 | ) |  | (4,887 | )
Results of consolidated CLOs: |  |  |  |  |  |  |  |
Income attributable to consolidated CLOs |  | 12,849 |  |  | 5,655 |  |  | 24,835 |  |  | 22,219 |
Expenses attributable to consolidated CLOs |  | 14,997 |  |  | 11,417 |  |  | 28,989 |  |  | 21,238 |
Net (loss) income attributable to consolidated CLOs |  | (2,148 | ) |  | (5,762 | ) |  | (4,154 | ) |  | 981 |
Income before taxes from continuing operations |  | (3,848 | ) |  | (10,216 | ) |  | (5,614 | ) |  | (3,906 | )
Provision for income taxes |  | 497 |  |  | 1,816 |  |  | 926 |  |  | 3,115 |
(Loss) income from continuing operations |  | (4,345 | ) |  | (12,032 | ) |  | (6,540 | ) |  | (7,021 | )
Discontinued operations: |  |  |  |  |  |  |  |
Gain on sale of Bickford portfolio, net |  | — |  |  | 15,463 |  |  | — |  |  | 15,463 |
Income from discontinued operations, net |  | — |  |  | 806 |  |  | — |  |  | 1,647 |
Provision for income taxes |  | — |  |  | — |  |  | — |  |  | — |
Discontinued operations, net |  | — |  |  | 16,269 |  |  | — |  |  | 17,110 |
Net (loss) income |  | (4,345 | ) |  | 4,237 |  |  | (6,540 | ) |  | 10,089 |
Less: Net (loss) income attributable to noncontrolling interest |  | (747 | ) |  | 10,072 |  |  | (449 | ) |  | 14,177 |
Less: Net (loss) income attributable to VIE subordinated noteholders |  | (4,669 | ) |  | (9,250 | ) |  | (8,187 | ) |  | (8,821 | )
Net income available to common stockholders |  | $ | 1,071 |  |  | $ | 3,415 |  |  | $ | 2,096 |  |  | $ | 4,733 |

5

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)

|  | Three months ended June 30, |  | Six months ended June 30,
|  | 2014 |  | 2013 |  | 2014 |  | 2013
Net income (loss) per Class A common share: |  |  |  |  |  |  |  |
Basic, continuing operations, net |  | $ | 0.10 |  |  | $ | (1.26 | ) |  | $ | 0.20 |  |  | $ | (1.21 | )
Basic, discontinued operations, net |  | — |  |  | 1.59 |  |  | — |  |  | 1.67 |
Net income basic |  | 0.10 |  |  | 0.33 |  |  | 0.20 |  |  | 0.46 |
Diluted, continuing operations, net |  | 0.10 |  |  | (1.26 | ) |  | 0.20 |  |  | (1.21 | )
Diluted, discontinued operations, net |  | — |  |  | 1.59 |  |  | — |  |  | 1.67 |
Net income dilutive |  | $ | 0.10 |  |  | $ | 0.33 |  |  | $ | 0.20 |  |  | $ | 0.46 |
Weighted average number of Class A common shares: |  |  |  |  |  |  |  |
Basic |  | 10,617,863 |  |  | 10,243,951 |  |  | 10,602,311 |  |  | 10,242,733 |
Diluted |  | 10,617,863 |  |  | 10,243,951 |  |  | 10,602,311 |  |  | 10,242,733 |

See accompanying notes to consolidated financial statements.
6

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands, except share and per share data)
(Unaudited)

|  | Three months ended June 30, |  | Six months ended June 30,
|  | 2014 |  | 2013 |  | 2014 |  | 2013
Net (loss) income |  | $ | (4,345 | ) |  | $ | 4,237 |  |  | $ | (6,540 | ) |  | $ | 10,089 |
Other comprehensive income: |  |  |  |  |  |  |  |
Net unrealized holding gains (losses) on securities available for sale net of tax expense/(benefit) of $39, ($143), $70 and ($178) |  | 73 |  |  | (266 | ) |  | 130 |  |  | (331 | )
Less: reclassification adjustment for net gains included in net (loss) income net of tax expense of $3, $14, $5 and $25 |  | 6 |  |  | 26 |  |  | 9 |  |  | 46 |
Total comprehensive (loss) income |  | (4,278 | ) |  | 3,945 |  |  | (6,419 | ) |  | 9,712 |
Less: comprehensive (loss) income attributable to non-controlling interests and VIE subordinated noteholders |  | (5,416 | ) |  | 822 |  |  | (8,636 | ) |  | 5,356 |
Total comprehensive income available to Class A common stockholders |  | $ | 1,138 |  |  | $ | 3,123 |  |  | $ | 2,217 |  |  | $ | 4,356 |

See accompanying notes to consolidated financial statements.
7

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity
(in thousands, except share and per share data)
(Unaudited)

| Class A Common Stock |  | Class B Common Stock |  |  |  |  |  |  |  |  |  |  |  |
| Number of shares |  | Common stock |  | Number of shares |  | Common stock |  | Additional paid-in capital |  | Accumulated other comprehensive income |  | Appropriated retained earnings of consolidated TAMCO |  | Retained earnings |  | Non-controlling interest |  | Total
Balance at December 31, 2013 | 10,556,390 |  |  | $ | 11 |  |  | 30,968,877 |  |  | $ | 31 |  |  | $ | 100,903 |  |  | $ | 33 |  |  | $ | 84,591 |  |  | $ | 18,933 |  |  | $ | 361,354 |  |  | $ | 565,856 |
Stock-based compensation to directors for services rendered | 14,112 |  |  | — |  |  | — |  |  | — |  |  | 105 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 105 |
Stock-based compensation to employees and other | 47,445 |  |  | — |  |  | — |  |  | — |  |  | 443 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 443 |
Contribution | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 14 |  |  | 14 |
Net unrealized gains and losses on available for sale securities (net of tax of $75) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 139 |  |  | — |  |  | — |  |  | 9 |  |  | 148 |
Dividends paid | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (87 | ) |  | (87 | )
Purchase of majority ownership of subsidiary | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,276 |  |  | 1,276 |
Net changes in non-controlling interest | — |  |  | — |  |  | — |  |  | — |  |  | 135 |  |  | — |  |  | — |  |  | — |  |  | (71 | ) |  | 64 |
Net (loss) income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (8,187 | ) |  | 2,096 |  |  | (449 | ) |  | (6,540 | )
Balance at June 30, 2014 | 10,617,947 |  |  | $ | 11 |  |  | 30,968,877 |  |  | $ | 31 |  |  | $ | 101,586 |  |  | $ | 172 |  |  | $ | 76,404 |  |  | $ | 21,029 |  |  | $ | 362,046 |  |  | $ | 561,279 |

See accompanying notes to consolidated financial statements.
8

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

| Six months ended June 30,
| 2014 |  | 2013
Cash flows from operating activities: |  |  |
Net income available to common stockholders | $ | 2,096 |  |  | $ | 4,733 |
Net (loss) income attributable to non-controlling interest | (449 | ) |  | 14,177 |
Net (loss) income attributable to VIE subordinated note holders | (8,187 | ) |  | (8,821 | )
Net (loss) income | (6,540 | ) |  | 10,089 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |  |
Net realized loss – investments | 902 |  |  | 1,439 |
Net realized gain on sale of properties, net | — |  |  | (15,463 | )
Increase in other liabilities and accrued expenses | 1,817 |  |  | 2,199 |
Increase in due to brokers, dealers and trustees | 62,874 |  |  | 13,886 |
Change in unrealized (appreciation) depreciation– investments | (289 | ) |  | 2,500 |
Net change in loans originated for sale | (3,573 | ) |  | — |
Income from investments in partially-owned entities, net | (680 | ) |  | (1,413 | )
Deferred tax (benefit) expense | (1,409 | ) |  | 1,894 |
Increase in other assets | (5,322 | ) |  | (1,632 | )
Non cash compensation expense | 580 |  |  | 185 |
Non cash interest from investments in loans | (198 | ) |  | (111 | )
Accretion of discounts and depreciation expense | 3,510 |  |  | 3,985 |
Amortization and write off of deferred financing costs | 91 |  |  | 26 |
Accretion of mortgage note discount | (141 | ) |  | 20 |
(Decrease)/increase in policy liabilities | (9,477 | ) |  | 5,046 |
Operating activities from VIEs | 58,405 |  |  | (2,025 | )
Net cash provided by operating activities | 100,550 |  |  | 20,625 |
Cash flows from investing activities: |  |  |
Purchases of subsidiaries | (524 | ) |  | — |
Purchases of trading securities and loans carried at fair value | (186,431 | ) |  | (159,923 | )
Purchases of available for sale securities | (3,921 | ) |  | (4,917 | )
Purchases of derivatives | (986 | ) |  | (1,996 | )
Purchases of real estate | (1,098 | ) |  | (304 | )
Purchases of loans | (16,882 | ) |  | (21,198 | )
Purchases of fixed assets | (17 | ) |  | (40 | )
Proceeds from sales of real estate | — |  |  | 44,037 |
Decrease/(Increase) in restricted cash | 3,601 |  |  | (2,572 | )
Acquisitions, net cash | 7,213 |  |  | 2,138 |
Proceeds from loan repayments | 648 |  |  | 562 |
Proceeds from sales of trading securities | 248,603 |  |  | 32,145 |
Proceeds from foreign exchange | — |  |  | 45 |
Proceeds from sales of available for sale securities | 3,910 |  |  | 4,730 |
Proceeds from distributions paid by partially owned entities | 210 |  |  | — |
Decrease/(Increase) in policy loans | 9,436 |  |  | (4,760 | )
Change due to consolidation of trusts | (69 | ) |  | (19 | )
Investing activities from VIEs | (341,361 | ) |  | (309,205 | )
Net cash (used in)/provided by investing activities | (277,668 | ) |  | (421,277 | )

9

Cash flows from financing activities: |  |  |
Capital distributions paid by subsidiaries | — |  |  | (1,625 | )
Dividends paid | — |  |  | (1,599 | )
Proceeds from loan | 59,427 |  |  | 111,700 |
Principal payments under mortgage notes payable | (829 | ) |  | (740 | )
Partial paydown of borrowings | (159,814 | ) |  | (2,500 | )
Payment of placement costs | (176 | ) |  | (40 | )
Proceeds from issuance of common units of subsidiaries | — |  |  | 1,318 |
Financing activities from VIEs | 280,003 |  |  | 318,348 |
Net cash provided by financing activities | 178,611 |  |  | 424,862 |
Net increase in cash | 1,493 |  |  | 24,210 |
Cash and cash equivalents – unrestricted – beginning of period | 120,557 |  |  | 88,563 |
Cash and cash equivalents – unrestricted – end of period | $ | 122,050 |  |  | $ | 112,773 |
Supplemental disclosure of cash flow information: |  |  |
Cash paid for interest | $ | 15,703 |  |  | $ | 13,082 |
Cash paid for taxes | 2,650 |  |  | 318 |
Non-cash investing and financing activities: |  |  |
Capital change due to equity compensation | $ | 170 |  |  | $ | 152 |
Net assets related to acquisitions | (3,275 | ) |  | (378 | )

See accompanying notes to consolidated financial statements.
10

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
Basis of Presentation
The consolidated financial statements of Tiptree Financial Inc. and subsidiaries (the Company) were compiled in accordance with generally accepted accounting principles (GAAP). In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2013.
Certain prior period amounts have been reclassified to conform to the current year's presentation. These reclassifications had no impact on the Company's consolidated financial position, results of operations or net change in cash or cash equivalents.
(1) Organization
Tiptree Financial Inc. (Tiptree and, together with its consolidated subsidiaries, collectively, the Company) is a Maryland Corporation that was incorporated on March 19, 2007. Until July 1, 2013, Tiptree operated under the name Care Investment Trust Inc. (which, for the period prior to July 1, 2013, we refer to as Care Inc.). Tiptree is a diversified holding company which conducts its operations through its Operating Company, Tiptree Operating Company, LLC (Operating Company). Tiptree’s primary focus is on four sectors: insurance and insurance services, specialty finance (including corporate, consumer and tax-exempt credit), asset management and real estate. Tiptree’s Class A Common Stock is traded on the NASDAQ capital market under the symbol “TIPT.”
(2) Acquisitions
The following discussion summarizes the acquisition of businesses by Tiptree subsequent to December 31, 2013.
Luxury Mortgage Corp.
Tiptree completed the acquisition of 67.5% of Luxury in January 2014; therefore, Luxury is consolidated within Tiptree’s financial statements beginning with the first quarter of 2014 and reported in Tiptree’s specialty finance segment. Luxury’s operations include the origination, packaging and sale of agency, prime jumbo and super jumbo mortgage loans into the secondary market through whole loan sales. The loans are typically sold shortly after origination into a liquid secondary market.
Management has completed a preliminary assessment of the allocation of the fair value of the assets acquired and liabilities assumed from the Luxury acquisition in accordance with ASC 805 Business Combinations. The allocation of the purchase price is preliminary pending receipt of information necessary to identify and measure the assets acquired and the liabilities assumed. The Company anticipates finalizing the purchase price allocation as soon as practicable.
(3) Summary of Significant Accounting Policies
The consolidated financial statements of Tiptree Financial Inc. were compiled in accordance with generally accepted accounting principles (GAAP) using the accounting policies set forth in Note 2 of Notes to Financial Statements included in the 2013 Annual Report on Form 10-K. In the opinion of management, all adjustments necessary for a fair presentation have been made and were all of a normal recurring nature.
Below are the significant accounting policies associated with the Company’s subsidiary Luxury acquired in January 2014:
Accounting Policies
Substantially all loans originated by the Company are held for sale to permanent investors. The Company has elected to record all mortgage loans held for sale at fair value. The fair value of loans held for sale is determined using quoted prices for similar assets (level 2 inputs) and is determined on a loan by loan basis.
11

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
Luxury issues interest rate lock commitments (IRLC) to its customers, which are carried at estimated fair value on the Company’s consolidated balance sheet. The estimated fair values of these commitments are generally calculated by reference to quoted prices in secondary markets for commitments to sell certain government sponsored agency securities. The fair values of these commitments generally result in a Level 2 classification.
Luxury’s revenues include interest income earned for the period associated with loans on Luxury’s balance sheet, gain on sale income representing the difference between the fair value and the selling price of the related loan sold as well as any fee income earned at origination.
The following recently issued accounting standards are applicable to the Company and have not yet been implemented:
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)-Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. These amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information. ASU 2014-08 is effective for the first quarter of 2015 for the Company, and the Company is evaluating the effect upon its financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this standard affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This standard is effective for the Company January 1, 2017 and the Company is evaluating the effect upon its financial statements.
(4) CLOs and Consolidated Variable Interest Entities
Telos Asset Management LLC (Telos), a subsidiary of the Company acquired in 2012, is a collateralized loan obligation (“CLO”) manager of five CLOs; namely Telos CLO 2014-5, Ltd. (Telos 5), Telos CLO 2013-4, Ltd. (Telos 4), Telos CLO 2013-3, Ltd. (Telos 3), Telos CLO 2007‑2, Ltd. (Telos 2) and Telos CLO 2006-1, Ltd. (Telos 1). Prior to the acquisition of Tiptree Asset Management Company, LLC (TAMCO), in June 2012, the Company did not consolidate the then existing CLOs (Telos 1 and Telos 2) as it only held a residual interest which was recorded at fair value. The Company met the requirement to consolidate when it acquired the management rights of the CLOs in June 2012.
The term CLO generally refers to a special purpose vehicle that owns a portfolio of investments and issues various tranches of debt and subordinated debt obligations to finance the purchase of those investments. The investment activities of a CLO are governed by extensive investment guidelines, generally contained within a CLO’s “indenture” and other governing documents which limit, among other things, the CLO’s exposure to any single industry or obligor and provide that the CLO’s assets satisfy certain ratings requirements. Most CLOs have a defined investment period during which they are allowed to make investments and reinvest capital as it becomes available.
The assets of each of the CLOs are held solely as collateral to satisfy the obligations of the CLOs. The Company does not own and has no right to the benefits from, nor does it bear the risks associated with, the assets held by the CLOs, beyond its direct investments in, and investment advisory fees generated from, the CLOs. If the Company were to liquidate, the assets of the CLOs would not be available to its general creditors, and as a result, the Company does not consider them assets available for the benefit of its investors. Additionally, the investors in the CLOs have no recourse to the Company’s general assets for the debt issued by the CLOs. Therefore, this debt is not the Company’s obligation. For this reason the difference between the fair value of the assets and liabilities at initial consolidation and subsequent results attributable to the Variable Interest Entities (“VIE”) subordinated noteholders is reflected as appropriated retained earnings.
12

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
The Company’s percentage ownerships of the subordinated notes of the CLOs as of June 30, 2014 are as follows: 7.11% (Telos 1), 95.45% (Telos 2), 0.00% (Telos 3), 71.08% (Telos 4) and 70.51% (Telos 5).
As of June 30, 2014 and December 31, 2013, the Company’s maximum exposure to loss related to the CLOs is limited to its investment in the CLOs of $56,976 and $38,459, respectively, as well as the management fees receivable of $3,112 and $3,616 as of June 30, 2014 and December 31, 2013, respectively. Both the carrying values of the Company’s investment in the CLOs and management fees receivable are eliminated upon consolidation.
On May 21, 2014, Telos entered into a new $100,000 warehouse agreement with Telos 2014-6, Ltd. (Telos 6). As of June 30, 2014, $118,983 is carried as investments in loans at fair value and $23,400 as debt on the consolidated balance sheet of Tiptree. The Company’s exposure in Telos 6 is limited to its equity investment of $25,000. In July 2014, the Company further contributed $10,000 to the warehouse. In August 2014, the Company contributed an additional $10,000 to the warehouse.
The table below represents the assets and liabilities of the consolidated CLOs that are included in the Company’s consolidated balance sheet as of the dates indicated. Subordinated debt obligations owned by Tiptree are not included in these tables as these amounts are eliminated in consolidation.

| June 30, 2014 |  | December 31, 2013
Assets: |  |  |
Restricted cash | $ | 140,862 |  |  | $ | 67,604 |
Investment in loans | 1,565,916 |  |  | 1,298,155 |
Investment in trading securities | 21,472 |  |  | 19,366 |
Due from brokers | 14,640 |  |  | 15,945 |
Accrued interest receivable | 3,963 |  |  | 4,108 |
Deferred debt issuance costs | 11,844 |  |  | 9,261 |
Other assets | 212 |  |  | 177 |
Total assets of consolidated CLOs | $ | 1,758,909 |  |  | $ | 1,414,616 |
Liabilities: |  |  |
Notes payable | $ | 1,459,153 |  |  | $ | 1,154,097 |
Due to brokers | 53,337 |  |  | 11,479 |
Accrued interest payable | 9,138 |  |  | 9,745 |
Other liabilities | 465 |  |  | 285 |
Total liabilities of consolidated CLOs | $ | 1,522,093 |  |  | $ | 1,175,606 |

13

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
The following table represents revenue and expenses of the consolidated CLOs included in the Company’s consolidated statements of operations for the periods indicated:

| Three months ended June 30, |  | Six months ended June 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
Income: |  |  |  |  |  |  |
Realized loss | $ | (5,377 | ) |  | $ | (5,502 | ) |  | $ | (12,332 | ) |  | $ | (6,165 | )
Unrealized gain loans | (1,695 | ) |  | (6,685 | ) |  | (1,477 | ) |  | (3,569 | )
Interest income | 19,921 |  |  | 17,843 |  |  | 38,644 |  |  | 31,953 |
Total income attributable to consolidated CLOs | $ | 12,849 |  |  | $ | 5,656 |  |  | $ | 24,835 |  |  | $ | 22,219 |
Expenses: |  |  |  |  |  |  |
Interest expense | $ | 14,882 |  |  | $ | 11,109 |  |  | $ | 28,344 |  |  | $ | 20,720 |
Other expense | 115 |  |  | 308 |  |  | 645 |  |  | 518 |
Total expenses attributable to consolidated CLOs | $ | 14,997 |  |  | $ | 11,417 |  |  | $ | 28,989 |  |  | $ | 21,238 |

The tables below summarize the debt obligations of the CLOs consolidated by the Company as of June 30, 2014 and December 31, 2013. Subordinated debt obligations owned by Tiptree are not included in these tables as these amounts are eliminated in consolidation:

| June 30, 2014
| Aggregate principal amount |  | Spread over three months LIBOR |  | Unamortized discount |  | Carrying amount
Description |  |  |  |  |  |  |
Telos 5 (maturity April 2025) |  |  |  |  |  |  |
Class A | $ | 252,000 |  |  | 1.55 | % |  | $ | 251 |  |  | $ | 251,749 |
Class B-1 | 39,000 |  |  | N/A |  | (1) | 349 |  |  | 38,651 |
Class B-2 | 7,500 |  |  | 2.15 | % |  | 70 |  |  | 7,430 |
Class C | 32,750 |  |  | 3.00 | % |  | 531 |  |  | 32,219 |
Class D | 19,750 |  |  | 3.65 | % |  | 1,097 |  |  | 18,653 |
Class E | 18,000 |  |  | 5.00 | % |  | 1,691 |  |  | 16,309 |
Class F | 7,750 |  |  | 5.50 | % |  | 1,066 |  |  | 6,684 |
Subordinated | 10,500 |  |  | N/A |  |  | 1,028 |  |  | 9,472 |
Telos 4 (maturity July 2024) |  |  |  |  |  |  |
Class A | $ | 214,000 |  |  | 1.30 | % |  | $ | 918 |  |  | $ | 213,082 |
Class B | 46,500 |  |  | 1.80 | % |  | 1,975 |  |  | 44,525 |
Class C | 29,000 |  |  | 2.75 | % |  | 1,343 |  |  | 27,657 |
Class D | 19,250 |  |  | 3.50 | % |  | 1,501 |  |  | 17,749 |
Class E | 16,000 |  |  | 5.00 | % |  | 1,906 |  |  | 14,094 |
Class X | 2,800 |  |  | 0.95 | % |  | — |  |  | 2,800 |
Subordinated | 10,700 |  |  | N/A |  |  | 493 |  |  | 10,207 |

14

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

Telos 3 (maturity October 2024) |  |  |  |  |  |  |
Class A | $ | 225,000 |  |  | 1.42 | % |  | $ | — |  |  | $ | 225,000 |
Class B | 36,500 |  |  | 2.25 | % |  | — |  |  | 36,500 |
Class C | 26,500 |  |  | 3.00 | % |  | 547 |  |  | 25,953 |
Class D | 18,000 |  |  | 4.25 | % |  | 790 |  |  | 17,210 |
Class E | 15,000 |  |  | 5.50 | % |  | 1,460 |  |  | 13,540 |
Class F | 6,000 |  |  | 5.50 | % |  | 718 |  |  | 5,282 |
Subordinated | 34,350 |  |  | N/A |  |  | 1,349 |  |  | 33,001 |
Telos 2 (maturity April 2022) |  |  |  |  |  |  |
Class A-1 | $ | 161,470 |  |  | 0.26 | % |  | $ | 19,377 |  |  | $ | 142,093 |
Class A-2 | 40,000 |  |  | 0.40 | % |  | 8,263 |  |  | 31,737 |
Class B | 27,500 |  |  | 0.55 | % |  | 7,157 |  |  | 20,343 |
Class C | 22,000 |  |  | 0.95 | % |  | 9,069 |  |  | 12,931 |
Class D | 22,000 |  |  | 2.20 | % |  | 11,490 |  |  | 10,510 |
Class E | 16,000 |  |  | 5.00 | % |  | 13,028 |  |  | 2,972 |
Subordinated | 2,000 |  |  | N/A |  |  | 1,614 |  |  | 386 |
Telos 1 (maturity October 2021) |  |  |  |  |  |  |
Class A-1D | $ | 24,666 |  |  | 0.27 | % |  | $ | 2,870 |  |  | $ | 21,796 |
Class A-1R | 9,250 |  |  | 0.29 | % |  | 1,077 |  |  | 8,173 |
Class A-1T | 33,915 |  |  | 0.27 | % |  | 3,946 |  |  | 29,969 |
Class A-2 | 60,000 |  |  | 0.40 | % |  | 12,068 |  |  | 47,932 |
Class B | 27,200 |  |  | 0.49 | % |  | 6,887 |  |  | 20,313 |
Class C | 22,000 |  |  | 0.85 | % |  | 8,831 |  |  | 13,169 |
Class D | 22,000 |  |  | 1.70 | % |  | 11,094 |  |  | 10,906 |
Class E | 16,000 |  |  | 4.25 | % |  | 12,676 |  |  | 3,324 |
Subordinated | 40,223 |  |  | N/A |  |  | 25,391 |  |  | 14,832 |
| $ | 1,633,074 |  |  |  |  | $ | 173,921 |  |  | $ | 1,459,153 |

(1) Tranche B-1 Notes in Telos 5 have a fixed rate of 4.45% over the life of the CLO.
15

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

| December 31, 2013
| Aggregate principal amount |  | Spread over three months LIBOR |  | Unamortized discount |  | Carrying amount
Description |  |  |  |  |  |  |
Telos 4 (maturity July 2024) |  |  |  |  |  |  |
Class A | $ | 214,000 |  |  | 1.30 | % |  | $ | 962 |  |  | $ | 213,038 |
Class B | 46,500 |  |  | 1.80 | % |  | 2,066 |  |  | 44,434 |
Class C | 29,000 |  |  | 2.75 | % |  | 1,401 |  |  | 27,599 |
Class D | 19,250 |  |  | 3.50 | % |  | 1,562 |  |  | 17,688 |
Class E | 16,000 |  |  | 5.00 | % |  | 1,976 |  |  | 14,024 |
Class X | 3,500 |  |  | 0.95 | % |  | — |  |  | 3,500 |
Subordinated | 10,700 |  |  | N/A |  |  | 516 |  |  | 10,184 |
Telos 3 (maturity October 2024) |  |  |  |  |  |  |
Class A | $ | 225,000 |  |  | 1.42 | % |  | $ | — |  |  | $ | 225,000 |
Class B | 36,500 |  |  | 2.25 | % |  | — |  |  | 36,500 |
Class C | 26,500 |  |  | 3.00 | % |  | 570 |  |  | 25,930 |
Class D | 18,000 |  |  | 4.25 | % |  | 822 |  |  | 17,178 |
Class E | 15,000 |  |  | 5.50 | % |  | 1,512 |  |  | 13,488 |
Class F | 6,000 |  |  | 5.50 | % |  | 743 |  |  | 5,257 |
Subordinated | 29,000 |  |  | N/A |  |  | 1,322 |  |  | 27,678 |
Telos 2 (maturity April 2022) |  |  |  |  |  |  |
Class A-1 | $ | 221,836 |  |  | 0.26 | % |  | $ | 28,216 |  |  | $ | 193,620 |
Class A-2 | 40,000 |  |  | 0.40 | % |  | 8,717 |  |  | 31,283 |
Class B | 27,500 |  |  | 0.55 | % |  | 7,532 |  |  | 19,968 |
Class C | 22,000 |  |  | 0.95 | % |  | 9,473 |  |  | 12,527 |
Class D | 22,000 |  |  | 2.20 | % |  | 11,900 |  |  | 10,100 |
Class E | 16,000 |  |  | 5.00 | % |  | 13,155 |  |  | 2,845 |
Subordinated | 2,000 |  |  | N/A |  |  | 1,654 |  |  | 346 |
Telos 1 (maturity October 2021) |  |  |  |  |  |  |
Class A-1D | $ | 39,270 |  |  | 0.27 | % |  | $ | 4,867 |  |  | $ | 34,403 |
Class A-1R | 14,726 |  |  | 0.29 | % |  | 1,826 |  |  | 12,900 |
Class A-1T | 53,996 |  |  | 0.27 | % |  | 6,693 |  |  | 47,303 |
Class A-2 | 60,000 |  |  | 0.40 | % |  | 12,781 |  |  | 47,219 |
Class B | 27,200 |  |  | 0.49 | % |  | 7,277 |  |  | 19,923 |
Class C | 22,000 |  |  | 0.85 | % |  | 9,261 |  |  | 12,739 |
Class D | 22,000 |  |  | 1.70 | % |  | 11,548 |  |  | 10,452 |
Class E | 16,000 |  |  | 4.25 | % |  | 12,861 |  |  | 3,139 |
Subordinated | 40,223 |  |  | N/A |  |  | 26,391 |  |  | 13,832 |
| $ | 1,341,701 |  |  |  |  | $ | 187,604 |  |  | $ | 1,154,097 |

(5) Operating Segment Data
16

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
The Company has four reportable operating segments. The Company’s operating segments are organized in a manner that reflects how management views these strategic business units. A description of each of the reportable segments is as follows:
•Insurance and Insurance Services operations are conducted by PFG, a majority owned subsidiary of Tiptree. PFG’s operating subsidiaries consist of Philadelphia Financial Life Assurance Company (PFLAC), Philadelphia Financial Life Assurance Company of New York (PFLACNY), Philadelphia Financial Distribution Company (PFDC), Philadelphia Financial Administrative Services Company (PFASC), and Philadelphia Financial Agency, Inc. (PFA). Philadelphia Financial’s principal insurance activity is the structuring, underwriting, marketing and administration of variable life insurance and variable annuity products to the high net worth market. Total separate account assets for policies written by PFG are $4,799,568. PFASC, acquired certain assets and administration rights from The Hartford on July 13, 2012. PFASC administers approximately $37.4 billion in COLI and BOLI policies for The Hartford.
•Specialty Finance activities are primarily conducted through the Company’s majority-controlled subsidiaries, MFCA, Luxury and Siena. MFCA is a specialty finance company that owns and manages a portfolio of non-investment grade and non-rated direct and indirect debt obligations of middle-market tax-exempt borrowers. Siena’s business consists of structuring asset-based loan facilities across diversified industries which include manufacturing, distribution, wholesale, and service companies. Luxury is a residential mortgage lender that originates loans conforming FHA, prime jumbo and super jumbo mortgages for sale to institutional investors. In addition to MFCA, Luxury, and Siena, Tiptree’s other specialty finance investments include principal investment holdings of CLO subordinated notes and a structured corporate loan portfolio.
•Asset Management activities are conducted through TAMCO, an SEC-registered investment advisor. TAMCO’s operating subsidiaries include: (1) Telos, an asset management company that specializes in investing in middle market corporate credit through managed accounts and structured investment vehicles, such as CLOs; (2) Muni Capital Management, LLC (MCM) which in addition to managing its own portfolio of tax-exempt securities, manages Non-Profit Preferred Funding Trust I (NPPF I), a structured tax-exempt pass-through entity that holds tax-exempt bonds for the benefit of unaffiliated investors; (3) Tiptree Capital Management, LLC, which provides services to Operating Company; and (4) TREIT, a real estate focused service provider.
•Real Estate primarily relates to the activities of 1) Care LLC, a wholly-owned subsidiary of Tiptree which has a geographically diverse portfolio of senior housing assets including senior apartments, assisted-living, independent-living and memory care and 2) Star Asia, which consists of various entities which are all Japan based real estate holding companies formed to invest in Asian properties and real estate debt instruments. Care LLC operates the business operated by Care Inc. prior to the Contribution Transactions ( this business as operated by Care Inc. and Care LLC is collectively referred to as Care). (See Note 13—Stockholder’s Equity—Contribution Transactions for further detail).
On May 21, 2014, Star Asia Opportunity, LLC (SAO) was liquidated and Tiptree received a final distribution of $16. In addition, Tiptree holds a 17% interest in Star Asia Finance, Limited (SAF), and a 50% interest in Star Asia Opportunity II, LLC (SAO II).
The tabular information that follows shows components of revenue, expense, and profit or loss, for each of the operating segments for the periods ended June 30, 2014 and 2013 and total assets as of June 30, 2014 and December 31, 2013.
Revenue is derived from the main income components of each segment. For Insurance and Insurance Services, the main drivers of revenue are fees on separate account assets, and administration service fees. For Specialty Finance, the main sources of revenue are investment interest and realized and unrealized gains/losses on investment securities. For Asset Management, revenue is derived from management fees based on assets under management and, in some cases, incentive fees based on the profits generated. For Real Estate, revenue includes rental revenue and investment interest.
Intersegment revenues refers to those items of revenue which will be eliminated upon consolidation. Included in revenue, expense, interest revenue, interest expense, segment profit/(loss), and segment assets are items which are eliminated upon consolidation as well as adjustments for discontinued operations, reclassifications, assets of consolidated CLOs and non-controlling interest. These items are classified as corporate eliminations and other in the tables below.
17

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
Each reportable segment’s measure of profit/(loss) is reported before income taxes and includes discontinued operations and non-controlling interest as this is how management views its segments.

| Three months ended June 30, 2014
| Insurance and insurance services |  | Specialty finance |  | Asset management |  | Real estate |  | Corporate eliminations and other |  | Totals
Fee income | $ | 18,114 |  | (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 18,114 |
Rental revenue | — |  |  | — |  |  | — |  |  | 4,375 |  |  | 18 |  |  | 4,393 |
Interest income | 1,145 |  |  | 6,643 |  |  | — |  |  | 682 |  |  | (3,532 | ) |  | 4,938 |
Other revenue | 9 |  |  | 1,871 |  |  | 442 |  | (2) | 113 |  |  | (451 | ) |  | 1,984 |
Intersegment revenues | — |  |  | 110 |  |  | 2,943 |  | (2) | — |  |  | (3,053 | ) |  | — |
Total revenue | $ | 19,268 |  |  | $ | 8,624 |  |  | $ | 3,385 |  |  | $ | 5,170 |  |  | $ | (7,018 | ) |  | $ | 29,429 |
Interest expense | $ | 2,897 |  |  | $ | 2,340 |  |  | $ | — |  |  | $ | 978 |  |  | $ | 44 |  |  | $ | 6,259 |
Payroll expense | 4,788 |  |  | 3,237 |  |  | 2,772 |  |  | 1,716 |  |  | — |  |  | 12,513 |
Professional fee expense | 734 |  |  | 1,329 |  |  | 252 |  |  | 117 |  |  | 392 |  |  | 2,824 |
Other expense | 7,087 |  |  | 898 |  |  | 372 |  |  | 1,952 |  |  | (776 | ) |  | 9,533 |
Total expense | 15,506 |  |  | 7,804 |  |  | 3,396 |  |  | 4,763 |  |  | (340 | ) |  | 31,129 |
Segment profit/(loss) | $ | 3,762 |  |  | $ | 820 |  |  | $ | (11 | ) |  | $ | 407 |  |  | $ | (6,678 | ) |  | $ | (1,700 | )
Net loss attributable to consolidated CLOs |  |  |  |  |  |  |  |  |  |  | (2,148 | )
Less: non-controlling interest and net income attributable to the VIE subordinated noteholders |  |  |  |  |  |  |  |  |  |  | (5,416 | )
Discontinued operations |  |  |  |  |  |  |  |  |  |  | — |
Income taxes |  |  |  |  |  |  |  |  |  |  | 497 |
Net income available to common stockholders |  |  |  |  |  |  |  |  |  |  | $ | 1,071 |

(1) Includes separate account and administrative servicing fees.
(2) Includes management fees which is a component of other income on the Company’s Consolidated Statements of Operations.
18

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

| Three months ended June 30, 2013
| Insurance and insurance services |  | Specialty finance |  | Asset management |  | Real estate |  | Corporate eliminations and other |  | Totals
Fee income | $ | 17,669 |  | (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 17,669 |
Rental revenue | — |  |  | — |  |  | — |  |  | 3,995 |  |  | (2,901 | ) |  | 1,094 |
Interest income | 1,226 |  |  | 5,720 |  |  | — |  |  | 587 |  |  | (3,345 | ) |  | 4,188 |
Other revenue/unrealized (loss) | 40 |  |  | (4,401 | ) |  | 74 |  | (2 | ) | 17,153 |  |  | (16,035 | ) |  | (3,169 | )
Intersegment revenues | — |  |  | 47 |  |  | 5,141 |  | (2 | ) | — |  |  | (5,188 | ) |  | — |
Total revenue | $ | 18,935 |  |  | $ | 1,366 |  |  | $ | 5,215 |  |  | $ | 21,735 |  |  | $ | (27,469 | ) |  | $ | 19,782 |
Interest expense | $ | 3,129 |  |  | $ | 570 |  |  | $ | — |  |  | $ | 1,711 |  |  | $ | (1,347 | ) |  | $ | 4,063 |
Payroll expense | 4,595 |  |  | 269 |  |  | 3,450 |  |  | 582 |  |  | — |  |  | 8,896 |
Professional fee expense | 336 |  |  | 841 |  |  | 216 |  |  | 1,187 |  |  | — |  |  | 2,580 |
Other expense | 6,681 |  |  | 672 |  |  | 203 |  |  | 2,981 |  |  | (1,840 | ) |  | 8,697 |
Total expense | 14,741 |  |  | 2,352 |  |  | 3,869 |  |  | 6,461 |  |  | (3,187 | ) |  | 24,236 |
Segment profit/(loss) | $ | 4,194 |  |  | $ | (986 | ) |  | $ | 1,346 |  |  | $ | 15,274 |  |  | $ | (24,282 | ) |  | $ | (4,454 | )
Net loss attributable to consolidated CLOs |  |  |  |  |  |  |  |  |  |  | (5,762 | )
Less: non-controlling interest and net income attributable to the VIE subordinated noteholders |  |  |  |  |  |  |  |  |  |  | 822 |
Discontinued operations |  |  |  |  |  |  |  |  |  |  | 16,269 |
Income taxes |  |  |  |  |  |  |  |  |  |  | 1,816 |
Net income available to common stockholders |  |  |  |  |  |  |  |  |  |  | 3,415 |

(1) Includes separate account and administrative servicing fees.
(2) Includes management fees which is a component of other income on the Company’s Consolidated Statements of Operations.
19

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

| Six months ended June 30, 2014
| Insurance and insurance services |  | Specialty finance |  | Asset management |  | Real estate |  | Corporate eliminations and other |  | Totals
Fee income | $ | 35,953 |  | (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 35,953 |
Rental revenue | — |  |  | — |  |  | — |  |  | 8,821 |  |  | 18 |  |  | 8,839 |
Interest income | 2,333 |  |  | 13,959 |  |  | — |  |  | 1,365 |  |  | (7,356 | ) |  | 10,301 |
Other revenue | 14 |  |  | 4,370 |  |  | 537 |  | (2) | 342 |  |  | (595 | ) |  | 4,668 |
Intersegment revenues | — |  |  | 187 |  |  | 6,311 |  | (2) | — |  |  | (6,498 | ) |  | — |
Total revenue | $ | 38,300 |  |  | $ | 18,516 |  |  | $ | 6,848 |  |  | $ | 10,528 |  |  | $ | (14,431 | ) |  | $ | 59,761 |
Interest expense | $ | 5,810 |  |  | $ | 4,487 |  |  | $ | — |  |  | $ | 1,956 |  |  | $ | (32 | ) |  | $ | 12,221 |
Payroll expense | 10,070 |  |  | 4,415 |  |  | 5,084 |  |  | 3,514 |  |  | — |  |  | 23,083 |
Professional fee expense | 924 |  |  | 2,182 |  |  | 467 |  |  | 172 |  |  | 169 |  |  | 3,914 |
Other expense | 15,361 |  |  | 2,675 |  |  | 703 |  |  | 4,071 |  |  | (807 | ) |  | 22,003 |
Total expense | 32,165 |  |  | 13,759 |  |  | 6,254 |  |  | 9,713 |  |  | (670 | ) |  | 61,221 |
Segment profit/(loss) | $ | 6,135 |  |  | $ | 4,757 |  |  | $ | 594 |  |  | $ | 815 |  |  | $ | (13,761 | ) |  | $ | (1,460 | )
Net loss attributable to consolidated CLOs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (4,154 | )
Less: non-controlling interest and net income attributable to the VIE subordinated noteholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (8,636 | )
Discontinued operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Income taxes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 926 |
Net income available to common stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 2,096 |
Segment assets as of June 30, 2014 | $ | 5,114,648 |  |  | $ | 396,366 |  |  | $ | 11,879 |  | (3) | $ | 150,844 |  |  | $ | 1,704,894 |  |  | $ | 7,378,631 |

(1) Includes separate account and administrative servicing fees.
(2) Includes management fees, which is a component of other income on the Company’s Consolidated Statements of Operations.
(3) Refer to Management’s Discussion and Analysis—Economic Net Income Components for further information on assets under management.
20

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

| Six months ended June 30, 2013
| Insurance and insurance services |  | Specialty finance |  | Asset management |  | Real estate |  | Corporate eliminations and other |  | Totals
Fee income | $ | 34,906 |  | (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 34,906 |
Rental revenue | — |  |  | — |  |  | — |  |  | 7,836 |  |  | (5,920 | ) |  | 1,916 |
Interest income | 2,407 |  |  | 10,728 |  |  | — |  |  | 911 |  |  | (6,832 | ) |  | 7,214 |
Other revenue/ unrealized (loss) | 72 |  |  | (3,836 | ) |  | 211 |  | (2) | 17,608 |  |  | (16,204 | ) |  | (2,149 | )
Intersegment revenues | — |  |  | 164 |  |  | 8,874 |  | (2) | — |  |  | (9,038 | ) |  | — |
Total revenue | $ | 37,385 |  |  | $ | 7,056 |  |  | $ | 9,085 |  |  | $ | 26,355 |  |  | $ | (37,994 | ) |  | $ | 41,887 |
Interest expense | $ | 6,263 |  |  | $ | 1,064 |  |  | $ | — |  |  | $ | 3,362 |  |  | $ | (2,791 | ) |  | $ | 7,898 |
Payroll expense | 9,611 |  |  | 276 |  |  | 6,669 |  |  | 968 |  |  | — |  |  | 17,524 |
Professional fee expense | 659 |  |  | 1,673 |  |  | 431 |  |  | 1,189 |  |  | — |  |  | 3,952 |
Other expense | 14,858 |  |  | 1,245 |  |  | 338 |  |  | 5,706 |  |  | (4,747 | ) |  | 17,400 |
Total expense | 31,391 |  |  | 4,258 |  |  | 7,438 |  |  | 11,225 |  |  | (7,538 | ) |  | 46,774 |
Segment profit/(loss) | $ | 5,994 |  |  | $ | 2,798 |  |  | $ | 1,647 |  |  | $ | 15,130 |  |  | $ | (30,456 | ) |  | $ | (4,887 | )
Net income attributable to consolidated CLOs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 981 |
Less: non-controlling interest and net income attributable to the VIE subordinated noteholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 5,356 |
Discontinued operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 17,110 |
Income taxes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,115 |
Net income available to common stockholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 4,733 |
Segment assets as of December 31, 2013 | $ | 4,949,262 |  |  | $ | 385,987 |  |  | $ | 7,896 |  | (3) | $ | 170,683 |  |  | $ | 1,366,620 |  |  | $ | 6,880,448 |

(1) Includes separate account and administrative servicing fees.
(2) Includes management fees, which is a component of other income on the Company’s Consolidated Statements of Operations.
(3) Refer to Management’s Discussion and Analysis—Economic Net Income Components for further information on assets under management.
21

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
(6) Available for Sale Securities
The amortized cost and fair values of available for sale securities held as of June 30, 2014 and December 31, 2013 are as follows:

| June 30, 2014
| Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 10,902 |  |  | $ | 175 |  |  | $ | (22 | ) |  | $ | 11,055 |
Corporate securities | 6,602 |  |  | 129 |  |  | (2 | ) |  | 6,729 |
Certificates of deposit | 100 |  |  | — |  |  | — |  |  | 100 |
Asset-backed securities | 65 |  |  | 3 |  |  | — |  |  | 68 |
| $ | 17,669 |  |  | $ | 307 |  |  | $ | (24 | ) |  | $ | 17,952 |

| December 31, 2013
| Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 11,965 |  |  | $ | 140 |  |  | $ | (116 | ) |  | $ | 11,989 |
Corporate securities | 5,567 |  |  | 71 |  |  | (42 | ) |  | 5,596 |
Certificates of deposit | 100 |  |  | — |  |  | — |  |  | 100 |
Asset-backed securities | 76 |  |  | 2 |  |  | — |  |  | 78 |
| $ | 17,708 |  |  | $ | 213 |  |  | $ | (158 | ) |  | $ | 17,763 |

22

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
The following table summarizes the gross unrealized losses on available for sale securities in an unrealized loss position as of June 30, 2014 and December 31, 2013:

| June 30, 2014
| Less than or equal to one year |  | More than one year
| Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 418 |  |  | $ | — |  |  | $ | 2,092 |  |  | $ | (22 | )
Corporate securities | 533 |  |  | (1 | ) |  | 234 |  |  | (1 | )
Asset-backed securities | — |  |  | — |  |  | 2 |  |  | — |
Total | $ | 951 |  |  | $ | (1 | ) |  | $ | 2,328 |  |  | $ | (23 | )

| December 31, 2013
| Less than or equal to one year |  | More than one year
| Fair value |  | Gross unrealized losses |  | Fair value |  | Gross unrealized losses
U.S. Treasury securities and obligations of U.S. government authorities and agencies | $ | 5,543 |  |  | $ | (102 | ) |  | $ | 854 |  |  | $ | (14 | )
Corporate securities | 2,253 |  |  | (42 | ) |  | 67 |  |  | — |
Asset-backed securities | — |  |  | — |  |  | 2 |  |  | — |
Total | $ | 7,796 |  |  | $ | (144 | ) |  | $ | 923 |  |  | $ | (14 | )

At June 30, 2014, the Company held nineteen securities which were in an unrealized loss position for more than one year. The total unrealized losses on these securities were $23 and the fair value was $2,328. At December 31, 2013, the Company held five securities that were in an unrealized loss position for more than one year. The total unrealized loss on these securities was $14 and the fair value was $923. The unrealized losses were attributable to changes in interest rates and not credit-related issues. There have been no other-than-temporary impairments recorded by the Company for the periods ended June 30, 2014 or December 31, 2013.
The amortized cost and fair values of investments of these debt securities at June 30, 2014, by contractual maturity date, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

| Amortized cost |  | Fair value
Due in one year or less | $ | 1,552 |  |  | $ | 1,557 |
Due after one year through five years | 11,538 |  |  | 11,709 |
Due after five years through ten years | 3,973 |  |  | 4,049 |
Due after ten years through twenty years | 541 |  |  | 569 |
Asset-backed securities | 65 |  |  | 68 |
| $ | 17,669 |  |  | $ | 17,952 |

Purchases of available for sale debt securities were $3,921 and $4,917 for the six month periods ended June 30, 2014 and 2013, respectively. There were no proceeds from maturities of available for sale debt securities for these same periods. Proceeds from sales of available for sale securities for the period ended June 30, 2014 were $3,910 with associated gains of $14. For the same period in 2013, proceeds from sales of available for sale debt securities were $4,730 with associated gains of $71.
23

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
(7) Fair Value of Financial Instruments
The following tables show the fair values and carrying values of the Company’s financial assets and liabilities measured on a recurring basis and the associated fair value hierarchy amounts as of June 30, 2014 and December 31, 2013. Included are balances associated with the consolidated CLOs:

|  |  | June 30, 2014 |  |
Assets: | Quoted prices in active markets Level 1 |  | Other significant observable inputs Level 2 |  | Significant unobservable inputs Level 3 |  | Fair value |  | Carrying value
Trading investments: |  |  |  |  |  |  |  |  |
Privately held equity securities | $ | — |  |  | $ | — |  |  | $ | 4,171 |  |  | $ | 4,171 |  |  | $ | 4,171 |
Privately held equity securities (1) | — |  |  | — |  |  | 3,219 |  |  | 3,219 |  |  | 3,219 |
Tax exempt securities | — |  |  | 24,442 |  |  | 3,551 |  |  | 27,993 |  |  | 27,993 |
CDO | — |  |  | — |  |  | 300 |  |  | 300 |  |  | 300 |
CLO | — |  |  | — |  |  | 825 |  |  | 825 |  |  | 825 |
Corporate bonds (1) | — |  |  | — |  |  | 18,253 |  |  | 18,253 |  |  | 18,253 |
Total trading investments | — |  |  | 24,442 |  |  | 30,319 |  |  | 54,761 |  |  | 54,761 |
Derivative assets: |  |  |  |  |  |  |  |  |
IRLC | — |  |  | 619 |  |  | — |  |  | 619 |  |  | 619 |
Credit derivatives | — |  |  | 221 |  |  | — |  |  | 221 |  |  | 221 |
Total derivative assets | — |  |  | 840 |  |  | — |  |  | 840 |  |  | 840 |
Total trading securities | — |  |  | 25,282 |  |  | 30,319 |  |  | 55,601 |  |  | 55,601 |
Loans held for sale | — |  |  | 25,104 |  |  | — |  |  | 25,104 |  |  | 25,104 |
Investment in loans | — |  |  | 99,945 |  |  | 22,039 |  |  | 121,984 |  |  | 121,984 |
Investment in loans (1) | — |  |  | 1,159,983 |  |  | 405,933 |  |  | 1,565,916 |  |  | 1,565,916 |
Available for sale securities: |  |  |  |  |  |  |  |  |
U.S. Treasury securities | 7,445 |  |  | — |  |  | — |  |  | 7,445 |  |  | 7,445 |
Obligations of state and political subdivisions | — |  |  | 3,610 |  |  | — |  |  | 3,610 |  |  | 3,610 |
Certificates of deposit | — |  |  | 100 |  |  | — |  |  | 100 |  |  | 100 |
Corporate bonds | — |  |  | 6,729 |  |  | — |  |  | 6,729 |  |  | 6,729 |
Asset-backed securities | — |  |  | 68 |  |  | — |  |  | 68 |  |  | 68 |
Total available for sale securities | 7,445 |  |  | 10,507 |  |  | — |  |  | 17,952 |  |  | 17,952 |

24

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

|  |  | June 30, 2014 |  |
| Quoted prices in active markets Level 1 |  | Other significant Level 2 |  | Significant unobservable inputs Level 3 |  | Fair value |  | Carrying value
Separate Account Assets: |  |  |  |  |  |  |  |  |
Cash | $ | 3,357 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,357 |  |  | $ | 3,357 |
Short-term investments | 157,378 |  |  | — |  |  | — |  |  | 157,378 |  |  | 157,378 |
Debt securities: |  |  |  |  |  |  |  |  |
U.S. Treasury securities | 2,791 |  |  | — |  |  | — |  |  | 2,791 |  |  | 2,791 |
U.S. government agencies | — |  |  | 1,192 |  |  | — |  |  | 1,192 |  |  | 1,192 |
Municipal bonds | — |  |  | 6,878 |  |  | — |  |  | 6,878 |  |  | 6,878 |
Asset-backed securities | — |  |  | 99 |  |  | — |  |  | 99 |  |  | 99 |
Corporate bonds | — |  |  | 8,826 |  |  | — |  |  | 8,826 |  |  | 8,826 |
Preferred stocks | 1,193 |  |  | — |  |  | — |  |  | 1,193 |  |  | 1,193 |
Common stocks | 108,328 |  |  | — |  |  | — |  |  | 108,328 |  |  | 108,328 |
Mutual funds | 103,604 |  |  | 137,092 |  |  | — |  |  | 240,696 |  |  | 240,696 |
Real estate funds | — |  |  | — |  |  | 2,769,159 |  |  | 2,769,159 |  |  | 2,769,159 |
Private equity | — |  |  | — |  |  | 84 |  |  | 84 |  |  | 84 |
Hedge funds: |  |  |  |  |  |  |  |  |
Multi-strategy | — |  |  | 66,652 |  |  | 714,672 |  |  | 781,324 |  |  | 781,324 |
Long/short | — |  |  | 22,255 |  |  | 80,047 |  |  | 102,302 |  |  | 102,302 |
Fund of funds | — |  |  | 3,379 |  |  | 177,862 |  |  | 181,241 |  |  | 181,241 |
Event driven | — |  |  | — |  |  | 90,855 |  |  | 90,855 |  |  | 90,855 |
Long only | — |  |  | 36,114 |  |  | 20,721 |  |  | 56,835 |  |  | 56,835 |
Global macro | — |  |  | 13,549 |  |  | 6,819 |  |  | 20,368 |  |  | 20,368 |
Fixed income arbitrage | — |  |  | — |  |  | 6,953 |  |  | 6,953 |  |  | 6,953 |
Master limited partnerships | — |  |  | 200,907 |  |  | 53,826 |  |  | 254,733 |  |  | 254,733 |
Fixed income (non-arbitrage) | — |  |  | 4,027 |  |  | 742 |  |  | 4,769 |  |  | 4,769 |
Other | — |  |  | — |  |  | 63 |  |  | 63 |  |  | 63 |
Other | — |  |  | 144 |  |  | — |  |  | 144 |  |  | 144 |
Subtotal - separate account assets | 376,651 |  |  | 501,114 |  |  | 3,921,803 |  |  | 4,799,568 |  |  | 4,799,568 |
Total | $ | 384,096 |  |  | $ | 1,821,935 |  |  | $ | 4,380,094 |  |  | $ | 6,586,125 |  |  | $ | 6,586,125 |
Liabilities: |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 19,254 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,254 |  |  | $ | 19,254 |
Derivative liabilities: |  |  |  |  |  |  |  |  |
IRS | — |  |  | 672 |  |  | — |  |  | 672 |  |  | 672 |
Credit derivatives | — |  |  | 845 |  |  | — |  |  | 845 |  |  | 845 |

25

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

Total derivative liabilities | — |  |  | 1,517 |  |  | — |  |  | 1,517 |  |  | 1,517 |
Total | $ | 19,254 |  |  | $ | 1,517 |  |  | $ | — |  |  | $ | 20,771 |  |  | $ | 20,771 |

(1) Indicates assets related to consolidated CLOs.

| December 31, 2013
Assets: | Quoted prices in active markets Level 1 |  | Other significant observable inputs Level 2 |  | Significant unobservable inputs Level 3 |  | Fair value |  | Carrying value
Trading investments: |  |  |  |  |  |  |  |  |
Privately held equity securities (1) | $ | — |  |  | $ | — |  |  | $ | 5,306 |  |  | $ | 5,306 |  |  | $ | 5,306 |
Tax exempt securities | — |  |  | 30,707 |  |  | 273 |  |  | 30,980 |  |  | 30,980 |
CDO | — |  |  | — |  |  | 520 |  |  | 520 |  |  | 520 |
CLO | — |  |  | — |  |  | 825 |  |  | 825 |  |  | 825 |
Corporate bonds (2) | — |  |  | — |  |  | 17,674 |  |  | 17,674 |  |  | 17,674 |
Total trading investments | — |  |  | 30,707 |  |  | 24,598 |  |  | 55,305 |  |  | 55,305 |
Derivative assets: |  |  |  |  |  |  |  |  |
IRS | — |  |  | 52 |  |  | — |  |  | 52 |  |  | 52 |
Total derivative assets | — |  |  | 52 |  |  | — |  |  | 52 |  |  | 52 |
Total trading securities | — |  |  | 30,759 |  |  | 24,598 |  |  | 55,357 |  |  | 55,357 |
Investment in loans (3) | — |  |  | 1,438,699 |  |  | 30,543 |  |  | 1,469,242 |  |  | 1,469,242 |
Available for sale securities: |  |  |  |  |  |  |  |  |
U.S. Treasury securities | 7,751 |  |  | — |  |  | — |  |  | 7,751 |  |  | 7,751 |
Obligations of state and political subdivisions | — |  |  | 4,238 |  |  | — |  |  | 4,238 |  |  | 4,238 |
Certificates of deposit | — |  |  | 100 |  |  | — |  |  | 100 |  |  | 100 |
Corporate bonds | — |  |  | 5,596 |  |  | — |  |  | 5,596 |  |  | 5,596 |
Asset-backed securities | — |  |  | 78 |  |  | — |  |  | 78 |  |  | 78 |
Total available for sale securities | 7,751 |  |  | 10,012 |  |  | — |  |  | 17,763 |  |  | 17,763 |

26

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

| December 31, 2013
| Quoted prices in active markets Level 1 |  | Other significant Level 2 |  | Significant unobservable inputs Level 3 |  | Fair value |  | Carrying value
Separate Account Assets: |  |  |  |  |  |  |  |  |
Cash | $ | 26,129 |  |  | $ | — |  |  | $ | — |  |  | $ | 26,129 |  |  | $ | 26,129 |
Short-term investments | 171,927 |  |  | — |  |  | — |  |  | 171,927 |  |  | 171,927 |
Debt securities: |  |  |  |  |  |  |  |  |
U.S. Treasury securities | 17,634 |  |  | — |  |  | — |  |  | 17,634 |  |  | 17,634 |
U.S. government agencies | — |  |  | 1,436 |  |  | — |  |  | 1,436 |  |  | 1,436 |
Municipal bonds | — |  |  | 8,014 |  |  | — |  |  | 8,014 |  |  | 8,014 |
Asset-backed securities | — |  |  | 8,113 |  |  | — |  |  | 8,113 |  |  | 8,113 |
Corporate bonds | — |  |  | 18,116 |  |  | — |  |  | 18,116 |  |  | 18,116 |
Preferred stocks | 1,018 |  |  | — |  |  | — |  |  | 1,018 |  |  | 1,018 |
Common stocks | 100,630 |  |  | — |  |  | — |  |  | 100,630 |  |  | 100,630 |
Mutual funds | 195,736 |  |  | — |  |  | — |  |  | 195,736 |  |  | 195,736 |
Real estate funds | — |  |  | — |  |  | 2,719,387 |  |  | 2,719,387 |  |  | 2,719,387 |
Private equity | — |  |  | — |  |  | 138 |  |  | 138 |  |  | 138 |
Hedge funds |  |  |  |  |  |  |  |  |  |
Multi-strategy | — |  |  | 66,615 |  |  | 682,751 |  |  | 749,366 |  |  | 749,366 |
Long/short | — |  |  | 19,115 |  |  | 84,315 |  |  | 103,430 |  |  | 103,430 |
Fund of funds | — |  |  | 2,509 |  |  | 191,423 |  |  | 193,932 |  |  | 193,932 |
Event driven | — |  |  | — |  |  | 86,724 |  |  | 86,724 |  |  | 86,724 |
Long only | — |  |  | 34,787 |  |  | 20,305 |  |  | 55,092 |  |  | 55,092 |
Global macro | — |  |  | 13,157 |  |  | 8,245 |  |  | 21,402 |  |  | 21,402 |
Fixed income arbitrage | — |  |  | — |  |  | 8,669 |  |  | 8,669 |  |  | 8,669 |
Master limited partnerships | — |  |  | 102,394 |  |  | 28,814 |  |  | 131,208 |  |  | 131,208 |
Fixed income (non-arbitrage) | — |  |  | 4,117 |  |  | 2,557 |  |  | 6,674 |  |  | 6,674 |
Other | — |  |  | — |  |  | 73 |  |  | 73 |  |  | 73 |
Other | — |  |  | 251 |  |  | — |  |  | 251 |  |  | 251 |
Subtotal - separate account assets | 513,074 |  |  | 278,624 |  |  | 3,833,401 |  |  | 4,625,099 |  |  | 4,625,099 |
Total | $ | 520,825 |  |  | $ | 1,758,094 |  |  | $ | 3,888,542 |  |  | $ | 6,167,461 |  |  | $ | 6,167,461 |
Liabilities: |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 18,493 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,493 |  |  | $ | 18,493 |
Derivative Liabilities: |  |  |  |  |  |  |  |  |
Credit derivatives | — |  |  | 598 |  |  | — |  |  | 598 |  |  | 598 |
Total | $ | 18,493 |  |  | $ | 598 |  |  | $ | — |  |  | $ | 19,091 |  |  | $ | 19,091 |

27

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
(1) Includes $1,692 related to CLOs classified in Level 3.
(2) Includes $17,674 related to CLOs classified in Level 3.
(3) Includes $1,267,612 and $30,543 classified in Level 2 and Level 3, respectively, related to CLOs.
The following table represents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the period ending June 30, 2014 and 2013:

| Fair value measurement for the three months and six months ended June 30, 2014 using significant unobservable inputs Level 3 |  | Fair value measurement for the three months and six months ended June 30, 2013 using significant unobservable inputs Level 3
Balance at December 31, | $ | 3,888,542 |  |  | $ | 3,504,623 |
Net realized gains/(losses) | 880 |  |  | 3 |
Net unrealized gains/(losses) | 149 |  |  | 4,209 |
Purchases | 41,308 |  |  | 152,549 |
Sales | (68,691 | ) |  | (45,589 | )
Issuances | 531 |  |  | — |
Settlements | — |  |  | 8 |
Transfers into/(out of) Level 3, net | 370,433 |  |  | 5,177 |
Attributable to policyowner | 43,750 |  |  | 130,110 |
Balance at March 31, | 4,276,902 |  |  | 3,751,090 |
Net realized gains/(losses) | 602 |  |  | (1,574 | )
Net unrealized gains/(losses) | (235 | ) |  | (1,487 | )
Purchases | 55,452 |  |  | 27,575 |
Sales | (126,868 | ) |  | (44,435 | )
Issuances | 761 |  |  | (8 | )
Settlements | — |  |  | (1,195 | )
Transfers into/(out of) Level 3, net | 90,622 |  |  | 2,810 |
Attributable to policyowner | 82,858 |  |  | (8,673 | )
Balance at June 30, | $ | 4,380,094 |  |  | $ | 3,724,103 |
Changes in unrealized gains included in earnings related to assets still held at period end | $ | 86 |  |  | $ | 2,722 |

For the six month period ended June 30, 2014, $461,053 was transferred between Level 2 and Level 3 primarily due to the corporate bonds. These transfers occurred due to the limited depth of market price supporting the price on these instruments. For the six month period ended June 30, 2013, $7,983 was transferred between Level 2 and Level 3, with the majority from corporate bonds held by the consolidated CLOs also due to limited depth of market price.
ASC Topic 820, as amended by ASU 2011-04, requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. Disclosure of this information is not required in circumstances where a valuation (unadjusted) is obtained from a third-party pricing service and the information regarding the unobservable inputs is not reasonably available to the Company. As such, the disclosure provided below provides quantitative information only about the significant unobservable inputs used in the valuation of certain privately held securities, credit default assets and tax-exempt municipal securities.
28

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

Assets | Fair value at June 30, 2014 |  | Fair value at December 31, 2013 |  | Valuation technique |  | Unobservable input(s) |  | June 30, 2014 Range (weighted average) |  | December 31, 2013 Range (weighted average)
Tax-exempt municipal | 193 |  |  | 274 |  |  | Discounted cash flow |  | Short and long term cash flows |  | .54% - 33.65% |  | .58% - 33.68%
Total | $ | 193 |  |  | $ | 274 |  |  |  |  |  |  |  |  |

The following tables show the fair values and carrying values of the Company’s financial assets and liabilities and the fair value hierarchy level(s) associated with these assets and liabilities as of June 30, 2014 and December 31, 2013:

| June 30, 2014
| Level within fair value hierarchy |  | Fair value |  | Carrying value
Assets: |  |  |  |  |
Cash and cash equivalents-unrestricted | 1 |  | $ | 122,050 |  |  | $ | 122,050 |
Cash and cash equivalents-restricted | 1 |  | 22,796 |  |  | 22,796 |
Trading securities | 2,3 |  | 34,129 |  |  | 34,129 |
Due from brokers, dealers, and trustees (1) | 1 |  | 11,809 |  |  | 11,809 |
Due from separate accounts (1) | 1 |  | 2,926 |  |  | 2,926 |
Loans held for sale | 2 |  | 25,104 |  |  | 25,104 |
Investments in loans | 2 |  | 122,138 |  |  | 122,138 |
Loans owned | 2 |  | 63,572 |  |  | 55,003 |
Policy loans | 3 |  | 92,711 |  |  | 92,711 |
Available for sale securities | 1,2,3 |  | 17,952 |  |  | 17,952 |
Separate account assets | 1,2,3 |  | 4,799,568 |  |  | 4,799,568 |
Assets of consolidated CLOs | 2,3 |  | 1,758,909 |  |  | 1,758,909 |
Total Financial Assets |  |  | $ | 7,073,664 |  |  | $ | 7,065,095 |
Liabilities: |  |  |  |  |
Debt securities-U.S. Treasury securities | 1 |  | 19,254 |  |  | 19,254 |
Debt | 3 |  | 300,434 |  |  | 285,706 |
Separate account liabilities | 1,2,3 |  | 4,799,568 |  |  | 4,799,568 |
Due to brokers, dealers and trustees | 1 |  | 71,068 |  |  | 71,068 |
Derivative liabilities | 2 |  | 1,517 |  |  | 1,517 |
Liabilities of consolidated CLOs | 2,3 |  | 1,522,093 |  |  | 1,522,093 |
Total Financial Liabilities |  |  | $ | 6,713,934 |  |  | $ | 6,699,206 |

(1) Included as a component of other assets on the Company’s Consolidated balance sheets.
29

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

| December 31, 2013
| Level within fair value hierarchy |  | Fair value |  | Carrying value
Assets: |  |  |  |  |
Cash and cash equivalents-unrestricted | 1 |  | $ | 120,557 |  |  | $ | 120,557 |
Cash and cash equivalents-restricted | 1 |  | 26,395 |  |  | 26,395 |
Trading securities | 2,3 |  | 35,991 |  |  | 35,991 |
Due from brokers, dealers, and trustees (1) | 1 |  | 6,956 |  |  | 6,956 |
Due from separate accounts (1) | 1 |  | 1,963 |  |  | 1,963 |
Investment in loans | 2 |  | 171,087 |  |  | 171,087 |
Loans owned | 2 |  | 48,212 |  |  | 40,260 |
Policy loans | 3 |  | 102,147 |  |  | 102,147 |
Available for sale securities | 1,2,3 |  | 17,763 |  |  | 17,763 |
Separate account assets | 1,2,3 |  | 4,625,099 |  |  | 4,625,099 |
Assets of consolidated CLOs | 2,3 |  | 1,414,616 |  |  | 1,414,616 |
Total Financial Assets |  |  | $ | 6,570,786 |  |  | $ | 6,562,834 |
Liabilities: |  |  |  |  |
Debt securities-U.S. Treasury securities | 1 |  | $ | 18,493 |  |  | $ | 18,493 |
Derivative liabilities | 2 |  | 598 |  |  | 598 |
Debt | 3 |  | 376,250 |  |  | 360,609 |
Due to brokers, dealer and trustees | 1 |  | 8,193 |  |  | 8,193 |
Separate account liabilities | 1,2,3 |  | 4,625,099 |  |  | 4,625,099 |
Liabilities of consolidated CLOs | 2,3 |  | 1,175,606 |  |  | 1,175,606 |
Total Financial Liabilities |  |  | $ | 6,204,239 |  |  | $ | 6,188,598 |

(1) Included as a component of other assets on the Company’s Consolidated balance sheets.
(8) Derivative Financial Instruments
The Company utilizes derivative financial instruments as part of its overall investment activities. Investments in derivative contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative activities are primarily classified by underlying credit risk and interest. In addition, the Company is also subject to additional counterparty risk should the counterparties fail to meet the contract terms.
Credit Derivatives
Credit derivatives are generally defined as over-the-counter contracts between a buyer and seller of protection against the risk of default on a set of obligations issued by a specified reference entity. The Company is exposed to credit risk when there is an unfavorable change in the value of investments as a result of adverse movements in the underlying credit spreads and enters into these contracts as a buyer of protection so as to minimize the credit risk exposure of its investment portfolio.
30

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
Credit Default Swap Indices (CDX) are credit derivatives that reference multiple names through underlying baskets or portfolios of single name credit default swaps. The Company held four CDX contracts as of June 30, 2014, with a notional amount o f $399,538 ($199,738 of sold protection and $199,800 of purchased protection). The Company enters into these contracts as both a buyer of protection and seller of protection so as to manage the credit risk exposure of its investment portfolio. The Company is required to deposit cash collateral for these positions equal to an initial 2.25% of the notional amount of the sold protection side, subject to increase based on additional maintenance margin as a result of decreases in value. As of June 30, 2014, total margin was $4,500, which is included as a component of other assets on the Company’s consolidated balance sheet.
Credit Default Swaps (CDS) are generally defined as over-the-counter contracts between a buyer and seller of protection against the risk of default on a set of obligations issued by a specified reference entity. The company is exposed to credit risk when there is an unfavorable change in the value of investments as a result of adverse movements in the underlying credit spreads and enters into these contracts as a buyer of protection so as to minimize the credit risk exposure of its investment portfolio. The Company is party to one CDS contract with a notional amount of $3,226 at June 30, 2014.
Credit derivatives are included as a component of trading investments, at fair value, if in an asset position, or derivative financial instruments, if in a liability position, on the Company’s consolidated balance sheet.
Interest Rate Lock Commitments
The Company is exposed to certain risks in connection with its mortgage banking operations at Luxury. The Company is exposed to interest rate risk for certain interest rate lock commitments (IRLCs) until a purchaser for the related underlying loans is identified. The fair value of IRLCs is subject to change primarily due to changes in market interest rates. The notional amount of the Company’s IRLCs as of June 30, 2014 was $71,523 with an associated fair value of $619. As of June 30, 2014, the IRLCs were included as a component of trading investments, at fair value on the Company’s consolidated balance sheet.
Interest Rate Swaps
The Company is exposed to interest rate risk when there is an unfavorable change in the value of investments as a result of adverse movements in the market interest rates. The Company enters into interest rate swaps to protect against such adverse movements in the interest rates. The Company is not required to deposit collateral for these swaps as the underlying collateral for the loan also serves as collateral for the swaps. This is included as a component of derivative financial instruments, at fair value, on the Company’s consolidated balance sheet.
As of June 30, 2014, the Company had six interest rate swaps associated with Care with a fair value of $(672) and a notional amount of $43,988.
The following tables identify the fair value amounts of the derivative instruments as of June 30, 2014 and December 31, 2013, categorized by primary underlying risk:
31

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

| June 30, 2014
| Asset Derivatives
| Credit risk |  | Interest rate risk |  | Total
Credit derivatives | $ | 221 |  |  | $ | — |  |  | $ | 221 |
Interest rate lock commitments | — |  |  | 619 |  |  | 619 |
Total | $ | 221 |  |  | $ | 619 |  |  | $ | 840 |
| Liability Derivatives
| Credit risk |  | Interest rate risk |  | Total
Credit derivatives | $ | 845 |  |  | — |  |  | $ | 845 |
Interest rate swaps | — |  |  | 672 |  |  | 672 |
Total | $ | 845 |  |  | $ | 672 |  |  | $ | 1,517 |

| December 31, 2013
| Asset Derivatives
| Credit risk |  | Interest rate risk |  | Total
Interest rate swaps | $ | — |  |  | $ | 52 |  |  | $ | 52 |
Total | $ | — |  |  | $ | 52 |  |  | $ | 52 |
| Liability Derivatives
| Credit risk |  | Interest rate risk |  | Total
Credit derivatives | $ | 598 |  |  | $ | — |  |  | $ | 598 |
Total | $ | 598 |  |  | $ | — |  |  | $ | 598 |

The following tables identify the unrealized gain/(loss) amounts included within the change in unrealized (depreciation)/appreciation of the consolidated statement of operations, categorized by primary underlying risk, for the six month period ended June 30, 2014 and 2013:

Change in unrealized (depreciation)/appreciation - derivatives
| June 30, 2014
| Credit risk |  | Interest rate risk |  | Total
Credit derivatives | $ | 123 |  |  | $ | — |  |  | $ | 123 |
Interest rate lock commitments | — |  |  | 190 |  |  | 190 |
Interest rate swaps | — |  |  | (724 | ) |  | (724 | )
Total | $ | 123 |  |  | $ | (534 | ) |  | $ | (411 | )

32

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)

| June 30,2013
| Credit risk |  | Interest rate risk |  | Total
Credit derivatives | $ | (735 | ) |  | $ | — |  |  | $ | (735 | )
Interest rate swaps | — |  |  | 3,170 |  |  | 3,170 |
Total | $ | (735 | ) |  | $ | 3,170 |  |  | $ | 2,435 |

(9) Investments in Loans Held at Amortized Cost
The components of the Company’s loan portfolio measured at amortized cost were as follows as of June 30, 2014 and December 31, 2013:

| June 30, 2014 |  | December 31, 2013
Commercial real estate - Care | $ | 22,115 |  |  | $ | 22,335 |
Asset backed - Siena | 30,896 |  |  | 16,493 |
Other loans | 1,992 |  |  | 1,432 |
Total loans, net | $ | 55,003 |  |  | $ | 40,260 |

Total loans include net deferred loan origination fees of $604 and $686 at June 30, 2014 and December 31, 2013, respectively. Asset backed loans are net of an allowance for loan losses of $85 and $9 at June 30, 2014 and December 31, 2013.
Commercial Real Estate - Care
As of June 30, 2014 and December 31, 2013, the Company, through its subsidiary Care, had a loan investment secured by skilled nursing facilities, as well as collateral relating to assisted living facilities and a multifamily property. The properties securing the loan are located in Louisiana. The Company performs a collateral valuation on these properties on an individual basis to determine if any impairment exists. As of both June 30, 2014 and December 31, 2013 no impairment existed on these properties.
Asset Backed - Siena
Siena structures asset-based loan facilities in the $1,000 to $20,000 range across diversified industries which include manufacturing distribution, wholesale, and service companies. As of June 30, 2014, the Company carried $30,896 in loans receivable on its consolidated balance sheet which is net of a participation interest of $3,195. Collateral for asset-backed loan receivables as of June 30, 2014 consisted of inventory, equipment and accounts receivable. Management reviews collateral for these loans on at least a monthly basis, or more frequently, if a draw is requested and has determined that no impairment existed as of June 30, 2014.
As of June 30, 2014 and December 31, 2013, there were no delinquencies in the Siena portfolio and all loans were classified as performing.
Other Loans
Care, through indirect subsidiaries of Care, owns two assisted living and memory care facilities located in upstate New York. The properties are leased to affiliates of Premier Senior Living, LLC (Premier), a privately-held owner and operator of senior housing facilities pursuant to a triple net master lease (Premier Master Lease). In connection therewith, a subsidiary of Care, made a loan to the lessees of the properties. The loan is secured by a pledge of outstanding equity interest in the lessees. The cost basis in the loan at June 30, 2014 was approximately $701 which equals its carrying value. In addition, the Company granted two limited recourse loans totaling $423 and two limited recourse loan advances totaling $868 to two principals of Luxury Mortgage Corp.
33

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
(10) Investment in Real Estate
The following table contains information regarding the Company’s investment in real estate as of June 30, 2014 and December 31, 2013:

| June 30, 2014 |  | December 31, 2013
Land | $ | 10,379 |  |  | $ | 9,213 |
Buildings and Improvements | 98,275 |  |  | 97,671 |
Less: Accumulated depreciation and amortization | (3,430 | ) |  | (1,823 | )
Total real estate, net | $ | 105,224 |  |  | $ | 105,061 |

During the second quarter of 2014, the Company completed its assessment of the allocation of the fair value of the real estate acquired from Heritage (including land, buildings, and equipment) in accordance with ASC 805 Business Combinations. This finalization resulted in a re-allocation between land and buildings on the Company’s consolidated balance sheets of $1,167.
(11) Debt
The long term debt of Tiptree’s subsidiaries are discussed below:
Operating Company
On September 18, 2013, Operating Company entered into a Credit Agreement with Fortress Credit Corp. (Fortress) and borrowed $50,000 thereunder, with an associated original issue discount of $1,000, which is being amortized over the term of the agreement. The Credit Agreement allows Operating Company to borrow additional amounts up to a maximum aggregate of $125,000, subject to satisfaction of certain customary conditions. The obligations of Operating Company under the Credit Agreement are secured by liens on substantially all of the assets of Operating Company. The principal of, and all accrued and unpaid interest on, all loans under the Credit Agreement become immediately due and payable on September 18, 2018. Borrowings under the Credit Agreement bear interest at a variable rate per annum equal to one-month LIBOR (with a minimum LIBOR rate of 1.25%) + a margin of 6.50% per annum. The weighted average rate paid for the three months ended June 30, 2014 was 7.75%. The principal amounts of the loan are repaid in quarterly installments, the amount of which may be adjusted based on the Net Leverage Ratio (as defined in the Credit Agreement) at the end of each fiscal quarter.
As of June 30, 2014, $48,500 in principal was outstanding and was recorded as part of debt on the consolidated balance sheet of the Company. The Company is obligated to pay interest on a monthly basis and has incurred interest expense of $1,919 for the period ended June 30, 2014. The Company capitalized approximately $1,272 of costs associated with entering into the credit agreement transaction and is amortizing the costs ratably over the life of the facility. The Company recorded approximately $127 of expense for the period ended June 30, 2014 relating to these capitalized costs. Operating Company believes it was in compliance with all of the financial covenants contained in the Credit Agreement as of June 30, 2014.
Also included in debt are any warehouse lines outstanding associated with the Company’s CLOs. As of June 30, 2014 there was $23,400 outstanding for a warehouse facility.
PFG
On July 13, 2012, Philadelphia Financial Administration Services Company, LLC (PFASC), an entity capitalized by TFP and PFGI, purchased certain assets of Hartford Life Private Placement, LLC (HLPP) from affiliates of The Hartford Financial Services Group, Inc. (The Hartford) for a purchase price of $117,500. PFASC and certain insurance subsidiaries of The Hartford entered into a long-term servicing agreement whereby PFASC administers approximately $37.4 billion in company owned life insurance (COLI) and bank owned life insurance (BOLI) business previously serviced by HLPP in exchange for a fee. We refer to this transaction as the PFAS Transaction.
34

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
In connection with the PFAS Transaction, PFAS issued a note in July 2012 in the amount of $100,000 to a third party. The note bears an annual interest rate of 12.66% and provides for monthly interest and principal payments commencing on August 15, 2012, with final payment due on July 15, 2022. Membership interests of PFLAC, the borrower, serve as collateral for the note. As of June 30, 2014, $88,015 in principal was outstanding on this debt.
The Company believes it was in compliance with all of the financial covenants contained in the note as of June 30, 2014.
Care
On April 24, 2012, Care refinanced a bridge loan for the acquisition of the Greenfield properties by entering into three separate non-recourse loans (each a Greenfield Loan and collectively the Greenfield Loans) with KeyCorp Real Estate Capital Markets, Inc. (KeyCorp) for an aggregate amount of approximately $15,680. The Greenfield Loans bear interest at a fixed rate of 4.76%, amortize over a thirty-year period, provide for monthly interest and principal payments commencing on June 1, 2012 and mature on May 1, 2022. The Greenfield Loans are secured by separate cross-collateralized, cross-defaulted first priority deeds of trust on each of the Greenfield properties. The Greenfield Loans are non-recourse to the Company except for certain non-recourse carveouts (customary for transactions of this type), as provided in the related guaranty agreements for each Greenfield Loan. A breach of the representations or covenants could result in a default under each of the Greenfield Loans, which would result in all amounts owing under each of the Greenfield Loans to become immediately due and payable since all of the Greenfield Loans are cross-defaulted. In June 2012, KeyCorp sold each of the Greenfield Loans to Federal Home Loan Mortgage Corporation (Freddie Mac) under Freddie Mac’s Capital Markets Execution (CME) Program.
In February 2013, with Care’s acquisition of the Calamar Properties, affiliates of Care entered into two separate loans from Liberty Bank. Both of these loans amortize over a thirty year period at a weighted average fixed rate of 4.21%. These loans are secured by separate first priority mortgages on each of the properties. A breach of representations or covenants could result in a default under each of these loans, which would result in all amounts owing under the applicable loan to become immediately due and payable.
In December 2013, affiliates of Care refinanced an internal bridge loan for the Terraces Portfolio, by entering into two loans from First Niagara Bank. Both of these loans amortize over a twenty-five year period at a weighted average floating rate of LIBOR + 2.50%. These loans are secured by first priority mortgages on each of the properties. A breach of representations or covenants could result in a default under each of these loans, which would result in all amounts owing under applicable loan to become immediately due and payable.
Effective November 2013, in connection with the acquisition of The Heritage Portfolio, affiliates of Care entered into one separate loan with First Niagara Bank as an administrative agent on behalf of the lenders. The loan amortizes over a twenty-five year period at a floating rate of LIBOR + 2.75%. The loan is secured by first priority mortgages on each of the properties. A breach of representations or covenants could result in a default under the loan, which would result in all amounts owing under the loan to become immediately due and payable.
As of June 30, 2014, the aggregate principal outstanding on the above described debt was $81,159.
Each of these loan transactions described above contains typical representations and covenants for loans of its type. As of June 30, 2014, the Company believes it was in compliance with such financial covenants.
Siena
On July 25, 2013, Siena closed on a line of credit with Wells Fargo Bank. This revolving line is $65,000 with an interest rate of LIBOR + 250 basis points and a maturity date of January 25, 2017. As of June 30, 2014, there was $20,162 outstanding.
This warehouse line of credit contains certain covenants, which the Company believes that it is in compliance with as of June 30, 2014.
Luxury
35

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
In February 2014, Luxury entered into a $30,000 warehouse line of credit agreement, expiring February 5, 2015, and the line bears interest at one-month LIBOR + 2.75% with a 3% floor. A $250 compensating balance is required for the line. As of June 30, 2014, $24,045 in principal was outstanding on the debt. Luxury’s three existing credit agreements contain customary financial covenants that require, among other items, minimum amounts of tangible net worth, profitability, maximum indebtedness ratios, and minimum liquid assets. As of June 30, 2014, Luxury believes it was in compliance or had obtained waivers of compliance with such financial covenants. Luxury’s ability to borrow under the warehouse line of credit agreements is not adversely affected by the waivers. The waivers are valid through and including June 30, 2014.
The following table summarizes the balance of the Company’s debt holdings excluding notes payable of consolidated VIE CLOs at (See Note 4 for notes payable of the consolidated VIE CLOs):

| June 30, 2014 |  | December 31, 2013
Operating Company: |  |  |
Warehouse borrowing | $ | 23,400 |  |  | $ | 133,715 |
Credit facility | 48,500 |  |  | 49,500 |
Original issue discount on credit facility | (843 | ) |  | (943 | )
Operating Company | 71,057 |  |  | 182,272 |
PFG: |  |  |
Note payable | 88,015 |  |  | 91,015 |
Siena: |  |  |
Revolving line of credit | 20,162 |  |  | 5,371 |
Care: |  |  |
Mortgage borrowings | 81,329 |  |  | 82,151 |
Unamortized (discount)/premium | (170 | ) |  | (200 | )
Care | 81,159 |  |  | 81,951 |
Luxury: |  |  |
Warehouse borrowing | 24,045 |  |  | — |
Note payable | 525 |  |  | — |
Mortgage borrowings | 743 |  |  | — |
Luxury | 25,313 |  |  | — |
Total debt | $ | 285,706 |  |  | $ | 360,609 |

Interest expense of $10,951 and $7,267 was incurred on the Company’s debt for the period ended June 30, 2014 and 2013 respectively.
Future maturities of the Company’s long-term debt (excluding warehouse borrowing) are as follows as of June 30, 2014:

2014 | $ | 10,429 |
2015 |  | 13,665 |
2016 |  | 13,739 |
2017 |  | 34,661 |
2018 |  | 54,423 |
Thereafter |  | 111,088 |
Total | $ | 238,005 |

36

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
Consolidated CLOs
The Company includes in its consolidated balance sheets, as part of liabilities of consolidated CLOs, the debt obligations used to finance the investment in corporate loans and other investments owned by the CLOs that it manages. The carrying amount of the notes represents the accreted value from the initial consolidation and is recognized through the measurement date using the effective interest method or a method that approximates the effective interest method. See Note 4 for additional information.
(12) Income Taxes
The total income tax expense of $926 and $3,115 for the six month periods ended June 30, 2014 and 2013, respectively, is reflected as a component of (loss) income from continuing operations.
For the period ended June 30, 2014, the Company’s effective tax rate on income from continuing operations, adjusted for the net loss attributable to the VIE subordinated noteholders, is equal to 33.6%, which does not bear a customary relationship to statutory income tax rates. The tax rate for the period ended June 30, 2014 is lower than the U.S. statutory income tax rate of 35% primarily due to the partnership income not subject to tax partially offset by state income taxes. Prior periods do not have comparable effective tax rates as the Company, prior to June 30, 2013, was treated as a Real Estate Investment Trust (“REIT”) for tax purposes and was not subject to income taxes.
On September 13, 2013, the Internal Revenue Service issued final Tangible Property Regulations (TPR) under Internal Revenue Code (IRC) Section 162 and IRC Section 263(a), which prescribe the capitalization treatment of certain repair costs, asset betterments and other costs which could affect temporary deferred taxes. Although the regulations are not effective until tax years beginning on or after January 1, 2014, certain portions may require an accounting method change on a retroactive basis, thus requiring an IRC Section 481(a) adjustment related to fixed and real asset deferred taxes. Pursuant to U.S. GAAP, as of the date of the issuance, the release of the regulations is treated as a change in tax law. Therefore, we were required to determine whether there was an impact on our financial statements as of December 31, 2013. We analyzed the expected impact of the new regulations on our financial position and determined that such impact is not significant. We will continue to monitor any future changes in the TPR prospectively.
37

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
(13) Stockholders’ Equity
Tiptree’s authorized capital stock consists of 100,000,000 shares of preferred stock, $0.001 par value, 200,000,000 shares of Class A common stock, $0.001 par value, and 50,000,000 shares of Class B common stock, $0.001 par value. As of June 30, 2014 and December 31, 2013, no shares of preferred stock were issued and outstanding. As of June 30, 2014 and December 31, 2013, there were 10,617,947 and 10,556,390 shares of Class A common stock issued and outstanding, respectively. As of both June 30, 2014 and December 31, 2013, there were 30,968,877 of Class B common stock issued and outstanding, respectively.
All shares of our Class A common stock have equal rights as to earnings, assets, dividends and voting. Shares of Class B common stock have equal voting rights but no economic rights (including no right to receive dividends or other distributions upon liquidation, dissolution or otherwise).
Contribution Transactions
On July 1, 2013, Care Inc. completed a transaction with Tiptree Financial Partners, L.P. (TFP) in which Care Inc. contributed substantially all of its assets to Operating Company in exchange for common units in Operating Company representing an approximately 25% interest in Operating Company, and TFP contributed substantially all of its assets (excluding shares of Tiptree’s Class A Common Stock owned by TFP) to Operating Company in exchange for common units in Operating Company representing an approximately 75% interest in Operating Company and the same number of shares of Tiptree’s newly classified Class B Common Stock (Contribution Transactions).
The Contribution Transactions were accounted for as a combination of entities under common control. As a result, the comparative financial information has been retrospectively adjusted to furnish comparative combined financial information from August 2010 (the date of common control). The application of this “as-if pooling of interests” required the previously issued consolidated financial statements of Tiptree to be recast to reflect such activity.
On July 1, 2013, immediately prior to closing the Contribution Transactions, Care Inc. filed the Fourth Articles of Amendment and Restatement with the Maryland Department of Assessments and Taxation in order to, among other things, (i) change its name from “Care Investment Trust Inc.” to “Tiptree Financial Inc.,” (ii) rename its common stock as “Class A common stock,” with no change to the economic or voting rights of such stock, (iii) reclassify 50,000,000 authorized and unissued shares of its common stock as Class B common stock, and (iv) remove certain provisions related to Care Inc.’s qualification as a REIT.
As a result of the Contribution Transactions, Tiptree does not qualify to be taxed as a REIT for Federal income tax purposes and became a taxable corporation effective January 1, 2013 due to the nature of the assets and the businesses contributed by TFP. As a REIT, Care Inc. was generally not subject to U.S. federal corporate income tax on its taxable income distributed to stockholders. However, even as a REIT, Care Inc. was subject to U.S. federal income and excise taxes in various situations, such as on Care Inc.’s undistributed income. See Note 12 for a discussion of income taxes.
On July 1, 2013, in conjunction with the Contribution Transactions, Operating Company issued warrants to TFP, to purchase an aggregate of 2,098,500 shares of membership units at an exercise price of $8.48 per share which is immediately exercisable and expires on June 12, 2017 and another warrant to purchase 1,510,920 shares of membership units at an exercise price of $5.36 per share which is immediately exercisable and expires on June 30, 2022. TFP paid $4,328 and $6,846, respectively, for these. Since these warrants were issued by Operating Company, they are not included as a component of stockholders’ equity of the Company. TFP also owns a warrant to purchase 652,500 shares of Class A common stock at $11.33 per share which is immediately exercisable and expires on September 30, 2018.
Pursuant to Operating Company’s limited liability operating agreement, beginning on July 1, 2014, TFP has the right to redeem common units of Operating Company (including any common units issued upon exercise of the warrants described above) for an equal number of shares of Class A common stock of Tiptree (and an equal number of shares of Class B common stock held by TFP will be canceled). Tiptree may instead, at its election, deliver a cash amount (or combination of cash and
38

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
Class A common stock) based on the fair market value of the Class A common stock on the redemption date. On July 18, 2014, TFP notified its limited partners that the Company will allow them to directly exchange TFP units for Class A common stock (at a rate of 2.798 shares of Class A common stock per TFP partnership unit. See Note 19—“Subsequent Events.”
For the three and six months ended June 30, 2014, the Company did not declare or pay a dividend. For the second quarter of 2013, the Company declared and paid a dividend of $0.02 per share of common stock.
(14) Stock Based Compensation
Equity Plans
In June 2007, the Company adopted the Care Investment Trust Inc. Equity Plan (2007 Equity Plan), as amended in December 2011, which provides for the issuance of equity-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock awards and other awards based upon the Company’s Class A common stock that may be made to directors and executive officers, employees and to the Company’s advisors and consultants who are providing services to the Company as of the date of the grant of the award.
The 2007 Equity Plan will automatically expire on the 10th anniversary of the date it was adopted. The Board of Directors may terminate, amend, modify or suspend the 2007 Equity Plan at any time, subject to stockholder approval in the case of certain amendments as required by law, regulation or stock exchange. As of December 31, 2013, no common shares remained for future issuance under the 2007 Equity Plan.
The following table summarizes changes to the issuances of Restricted Stock Units under the Company’s 2007 Equity Plan for the periods indicated:

| Number of shares
Unvested units as of December 31, 2012 | 102,984 |
Granted | 19,310 |
Vested | (45,263 | )
Forfeited | (4,728 | )
Unvested units as of December 31, 2013 | 72,303 |
Granted | — |
Vested | (25,154 | )
Forfeited | — |
Unvested units as of June 30, 2014 | 47,149 |

Included in vested shares for 2014 are 6,578 shares surrendered to pay taxes on behalf of the employees with shares vesting.
In June 2007, the Company adopted the Care Investment Trust Inc. Manager Equity Plan, which will automatically expire on the 10th anniversary of the date it was adopted. As of June 30, 2014, 134,629 common shares remain available for future issuances. No shares have been issued since March 30, 2012 from this plan.
The Board adopted the Tiptree 2013 Omnibus Incentive Plan (2013 Equity Plan) on August 8, 2013. The plan provides for the issuance of equity and equity-based awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock awards and other awards based upon the Company’s Class A common stock that may be made to directors and executive officers, employees and to the Company’s advisors and consultants who are providing services to the Company as of the date of the grant of the award. The general purpose of the 2013 Equity Plan is to attract, motivate and retain selected employees, consultants and directors for the Company, to provide them with incentives and rewards for superior performance and to better align their interests with the interests of the Company’s stockholders. For the six months ended June 30, 2014, 28,869 shares of immediately vested Class A common stock with an aggregate fair market value of $223 were issued to employees and persons providing services to the Company as incentive compensation under the 2013
39

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
Equity Plan. The number of remaining shares of Tiptree’s Class A common stock available for award under the 2013 Equity Plan is 1,806,450 shares of Class A common stock. Unless otherwise extended by the Board, the 2013 Equity Plan terminates automatically on August 8, 2023, the tenth anniversary of its adoption by the Board. For the six months ended June 30, 2014, there was no restricted stock unit activity associated with the 2013 Equity Plan.
Shares of common stock issued to the Company’s independent directors in respect to their annual retainer fees have been issued under the 2013 Equity Plan. During the six month period ended June 30, 2014, the Company issued 14,112 immediately vested shares of Class A common stock with an aggregate fair value of $108 to the Company’s independent directors as part of their annual retainer.
The following table summarizes changes to the issuances under the Company’s 2013 Equity Plan:

| Number of shares
Available for issuance as of December 31, 2013 | 1,849,431 |
Shares issued | (42,981 | )
Available for issuance as of June 30, 2014 | 1,806,450 |

Restricted share units
A holder of the restricted share units, as per the terms of the restricted stock unit agreement governing the awards, have all of the rights of a share holder, including the right to vote and receive distributions. The restricted share units shall vest and become nonforfeitable with respect to one‑third of Tiptree shares granted on each of the first, second, and third anniversaries of the date of the grant.
As of June 30, 2014, the total unrecognized compensation cost related to restricted units was $217, which is expected to be recognized as compensation expense over a weighted average period of 1.2 years.
Restricted unit expense was $113 and $122 for the six month periods ended June 30, 2014 and 2013, respectively. These expenses are included within payroll expense in the consolidated statement of operations.
Philadelphia Financial Group, Inc.
On October 14, 2010, the PFG board of directors adopted the PFG Plan. A total of 546,136 shares of common stock of PFG were reserved and available for issuance under the PFG Plan. The number of shares of PFG stock was increased to 583,300 during 2012. As of June 30, 2014, 564,092 shares have been granted to PFG employees.
Under the terms of the PFG Plan, the common stock shares shall vest and become nonforfeitable with respect to one-third of the shares initially granted on each of the first, second, and third anniversaries of the grant date. Grant dates were April 16, 2012, December 19, 2012 and March 8, 2013.
The Company has determined that the measurement date for shares granted under the PFG Plan awarded to employees occurs when the PFG common stock vests. The fair value of the unvested common stock granted is initially estimated based on the fair value of the individual assets and liabilities of PFG on the date of grant, and subsequently re-measured on each reporting date throughout the vesting period with changes in fair value during the requisite service period recognized as compensation cost through that period. The per unit fair value of unvested PFG common stock was $0.85 and $2.03 as of June 30, 2014 and December 31, 2013, respectively.
As of June 30, 2014 the total unrecognized compensation cost related to PFG common stock was $56, which is expected to be recognized as compensation expense over a weighted average period of less than one year. Total unrecognized compensation cost was $89 as of December 31, 2013. Expense incurred for PFG stock issued under the plan was $33 for both periods ended June 30, 2014 and 2013, respectively.
(15) Commitments and Contingencies
40

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
Contractual Obligations
The table below summarizes the Company’s contractual obligations for the periods indicated. In addition, the Company has off balance sheet arrangements in the form of letters of credit.

| June 30, 2014 |  | December 31, 2013 |
Mortgage notes payable and related interest (1) | $ | 106,301 |  |  | $ | 107,705 |  |
Notes payable (2) | 88,539 |  |  | 91,015 |  |
Notes payable CLOs (3) | 1,633,074 |  |  | 1,341,701 |  |
Warehouse borrowings (4) | 24,045 |  |  | — |  |
Operating lease obligations (5) | 13,774 |  |  | 6,437 |  |
Credit facilities/Lines of credit (6) | 68,662 |  |  | 54,871 |  |
Standby letters of credit (7) | 322 |  |  | — |  |
Total | $ | 1,934,717 |  |  | $ | 1,601,729 |  |

(1) | Mortgage notes payable include mortgage notes entered into by the Company in connection with its acquisition of several properties (See Note 11—Debt).

(2) | Notes payable relates to PFG’s acquisition of the administrative services rights from The Hartford, TFP payment for Series A preferred stock and common shares of PFG and Luxury promissory notes (See Note 11—Debt).

(3) | CLO notes payable principal is payable at stated maturity, 2021 for Telos 1, 2022 for Telos 2, 2024 for Telos 3, 2024 for Telos 4 and 2025 for Telos 5 (See Note 4—CLOs and Consolidated Variable Interest Entities).

(4) | The Company through its subsidiary Luxury has warehouse borrowings with several lenders (See Note 11—Debt).

(5) | Minimum rental obligations for Care, Siena, Luxury and PFG office leases. For the six month periods ended June 30, 2014 and 2013, rent expense for the Company’s office leases were $1,192 and $786, respectively.

(6) | On September 18, 2013, Operating Company entered into a Credit Agreement with Fortress and borrowed $50,000 under the Credit Agreement. The Credit Agreement also includes an option for Operating Company to borrow additional amounts up to a maximum aggregate of $125,000, subject to satisfaction of certain customary conditions. On July 25, 2013, TFI’s subsidiary Siena closed on a line of credit with Wells Fargo Bank. This revolving line is for $65,000 with an interest rate of LIBOR + 250 basis points and a maturity date of January 25, 2017. As of June 30, 2014, there was $20,162 outstanding on this line (See Note 11—Debt).

(7) | Tiptree’s subsidiary Siena issues standby letters of credit to customers which generally guarantee the borrower’s performance.

Litigation
Tiptree and its subsidiaries are parties to legal proceedings in the ordinary course of their business. Although Tiptree’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, Tiptree does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on Tiptree’s financial position or results of operations.
(16) Earnings Per Share
The Company calculates basic net income per common share based on the Company’s common stock outstanding as well as its unvested restricted share units. The unvested restricted share units are included in the basic earnings per share calculation using the two class method because they are eligible to receive dividends. Under the two class method income is allocated to the class of securities prior to the calculation of earnings per share. A diluted net income for the period takes into account the effect of dilutive instruments, such as any options on common shares, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of common shares outstanding. Diluted net income also includes the minimal dilutive impact of the 3,609,420 Operating Company warrants
41

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
held by TFP as part of the Contribution Transactions as summarized in Note 13. Earnings per share data excludes Tiptree’s Class B common stock, as the Class B common stock evidences a voting right without any economic interest.
The following table presents a reconciliation of basic and diluted net income per common share for the three and six month periods ended June 30, 2014 and 2013:

|  | Three months ended June 30, |  | Six months ended June 30,
|  | 2014 |  | 2013 |  | 2014 |  | 2013
Basic: |  |  |  |  |  |  |  |
Net income |  | $ | 1,071 |  |  | $ | 3,415 |  |  | $ | 2,096 |  |  | $ | 4,733 |
Weighted average number of Class A common shares outstanding (basic) |  | 10,617,863 |  |  | 10,243,951 |  |  | 10,602,311 |  |  | 10,242,733 |
Basic earnings per share |  | $ | 0.10 |  |  | $ | 0.33 |  |  | $ | 0.20 |  |  | $ | 0.46 |
Diluted: |  |  |  |  |  |  |  |
Net income |  | $ | 1,070 |  |  | $ | 3,399 |  |  | $ | 2,084 |  |  | $ | 4,704 |
Weighted average number Class A common shares outstanding (diluted) |  | 10,617,863 |  |  | 10,243,951 |  |  | 10,602,311 |  |  | 10,242,733 |
Diluted earnings per share |  | $ | 0.10 |  |  | $ | 0.33 |  |  | $ | 0.20 |  |  | $ | 0.46 |

The above table excludes the effect of the 2008 warrant convertible into 652,500 shares because the exercise price of $11.33 was greater than the average market price during such periods.
(17) Dispositions, Assets Held for Sale and Discontinued Operations
On June 28, 2013, Care completed the sale of its membership interests in Care YBE Subsidiary LLC (Care YBE), which owned fourteen senior living facilities (Bickford Portfolio) to an affiliate of National Health Investors Inc. The Company has reclassified the income and expenses attributable to all properties sold prior to June 30, 2014 to discontinued operations related to its real estate segment. Expenses include an allocation of interest expense based on property carrying values and cost of debt. The following illustrates the reclassification impact as a result of classifying properties as discontinued operations for the periods presented:

| Three months ended June 30, 2013 |  | Six months ended June 30, 2013
Revenues: |  |  |
Rental revenue | $ | 2,901 |  |  | $ | 5,920 |
Reimbursable income | 328 |  |  | 655 |
Expenses: |  |  |
Reimbursable expense | 223 |  |  | 550 |
Interest expense | 1,304 |  |  | 2,627 |
Other expenses | 43 |  |  | 43 |
Depreciation and amortization | 853 |  |  | 1,708 |
Income (loss) from discontinued operations, net | $ | 806 |  |  | $ | 1,647 |

There was no reclassification impact from disposed operations for the three and six month periods ended June 30, 2014.
42

TIPTREE FINANCIAL INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except shares and per share data)
June 30, 2014
(Unaudited)
(18) Accumulated Other Comprehensive Income
Activity in accumulated other comprehensive income/(loss) (AOCI), net of tax, for the periods ended June 30, 2014 and 2013, was as follows:

| Unrealized gains/ (losses) on securities |
Balance at December 31, 2012 | $ | 311 |  |
Other comprehensive loss before reclassification | (331 | ) |
Amounts reclassified from AOCI | 46 |  |
Period change | (285 | ) |
Balance at June 30, 2013 | $ | 26 |  |
Balance at December 31, 2013 | $ | 33 |  |
Other comprehensive loss before reclassification | 130 |  |
Amounts reclassified from AOCI | 9 |  |
Period change | 139 |  |
Balance at June 30, 2014 | $ | 172 |  |

The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the income statement for the six month period ended June 30, 2014:

Components of AOCI |  | Amount reclassified from AOCI |  | Affected line item in statement where net income is presented
Unrealized gains/ (losses) on available for sale securities |  |  |  |
|  | $ | 14 |  |  | Net realized gains on investments
|  | 14 |  |  | Net change before tax
|  | 5 |  |  | Provision for income tax
|  | $ | 9 |  |  | Net change after tax

(19) Subsequent Events
The Company has evaluated events that have occurred from July 1, 2014 through August 12, 2014 (the date this Form 10-Q was filed), and except as already included in the notes to the consolidated financial statements, it believes that no events have occurred that would require recognition or additional disclosures in these consolidated financial statements.
On May 21, 2014 the Telos 6 warehouse was initially capitalized and on July 7, 2014 the Company further contributed $10,000 to the warehouse. On August 6, 2014, the Company contributed an additional $10,000 to the warehouse.
On July 25, 2014, the Company received a principal payoff of $29,846 for the Westside loan investment resulting in a gain of approximately $7,839.
On August 5, 2014, the Company issued an aggregate of 11,096,938 shares of Class A common stock to limited partners of TFP in exchange for an aggregate of 3,966,025 TFP partnership units in transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereunder. TFP delivered to Tiptree for cancellation one share of Class B common stock of Tiptree for each share of Class A common stock issued. As of August
43

5, 2014, there were 21,720,761 shares of Class A common stock of Tiptree outstanding and 19,871,939 shares of Class B common stock of Tiptree outstanding. As of August 5, 2014, there were 11,068,219 limited partnership units of TFP outstanding, of which Tiptree owns 3,966,025.
On August 11, 2014, Operating Company and its subsidiaries Caroline Holdings LLC and Caroline Merger Sub, Inc. entered into an Agreement and Plan of Merger to acquire Fortegra Financial Corporation (Fortegra) (NYSE:FRF) for approximately $218,000 in cash. Fortegra is a publicly traded insurance services company that offers a wide array of revenue enhancing products, including payment protection products, motor club memberships, service contracts, device and warranty services, and administration services to its business partners, including insurance companies, retailers, dealers, insurance brokers and agents and financial services companies. Closing of the merger is subject to the satisfaction of customary conditions including, among other things, insurance regulatory approvals and expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
44

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Except for the historical information included and incorporated by reference in this Quarterly Report on Form 10-Q, the information included and incorporated by reference herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations and our strategic plans and objectives. When we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “should,” “target”, “will,” or similar expressions, we intend to identify forward-looking statements.
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 forecasted in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those described in the section entitled “Risk Factors” in Tiptree’s most recent Annual Report on Form 10-K.
The factors described herein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could affect our forward-looking statements. Consequently, our actual performance could be materially different from the results described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to update any forward-looking statements.
OVERVIEW
Tiptree Financial Inc. (“Tiptree”) is a diversified holding company engaged through its consolidated subsidiaries in a number of businesses and is an active acquirer of new businesses. Tiptree, whose operations date back to 2007, currently has subsidiaries that operate in four industry segments: insurance and insurance services, specialty finance, asset management and real estate.
We operate our business through Operating Company, which directly or indirectly owns all of our assets. Operating Company is owned 25% by Tiptree and 75% by Tiptree Financial Partners, L.P (“TFP”). As of August 5, 2014, Tiptree owned 36% of the limited partnership units of TFP so Tiptree’s combined direct and indirect interest in Operating Company is 52%. This report is being filed by Tiptree but includes information relating to Operating Company that may be of interest to partners of TFP as partnership units of TFP are redeemable for Class A common stock of Tiptree. On July 18, 2014, the Company notified TFP’s limited partners that it will allow them to directly exchange TFP units for Class A common stock (at a rate of 2.798 shares of Class A common stock per TFP partnership unit, subject to certain conditions and limitations). For more information on our ownership and structure see Notes 1, 13 and 19 within the accompanying consolidated financial statements.
Insurance and Insurance Services
Our insurance operations are conducted through PFG, of which we own 93.74%, with the remainder owned by management and employees of PFG. PFG, through its insurance subsidiaries, develops and administers private placement insurance and annuities for high net worth and institutional clients. As of June 30, 2014, the total separate account assets for policies written by PFG were $4.8 billion. PFG, through its PFAS subsidiary, administered $37.4 billion of company-owned and bank-owned life insurance policies for other insurers.
Specialty Finance
Our specialty finance operations include (i) MFCA, a wholly-owned business which provides financing for tax-exempt organizations, (ii) a 62.11% ownership interest in Siena, a recently formed asset-based lender that offers asset-based loans to small and mid-sized U.S. businesses and (iii) a debt interest and a 67.5% ownership interest in Luxury, a residential mortgage lender that originates conforming prime jumbo and super jumbo mortgages for sale to institutional investors. As of June 30, 2014, MFCA had investments of $28.0 million, Siena had funded loans of $30.9 million of aggregate principal amount outstanding and Luxury had loans held for sale, at fair value, of $25.1 million.
45

Asset Management
Our asset management operations include TAMCO, an SEC-registered investment adviser that, among other managerial and advisory entities, wholly-owns Telos Asset Management LLC (“Telos”), an asset manager focused on investing in corporate credit through structured investment vehicles, such as CLOs. As of June 30, 2014, Telos had approximately $1.7 billion of AUM. Our asset management operations also include MCM which manages NPPF I, a structured tax-exempt pass-through entity that holds tax-exempt bonds for the benefit of its investors. Interests in NPPF I in the form of tranched trust certificates are held solely by third parties unaffiliated with Tiptree. As of June 30, 2014, the underlying tax-exempt bonds held by NPPF I had an aggregate principal balance of $183.4 million.
Real Estate
Our real estate operations include (i) Care LLC, a wholly-owned real estate investment company that invests in senior housing properties, and (ii) interests in various Star Asia Entities, Tokyo based real estate holding companies formed to invest predominately in Asian properties and real estate related debt instruments. As of June 30, 2014, Care LLC had total assets of $142.2 million and the carrying value of our investment in the Star Asia entities was $12.9 million.
Tiptree intends to continue to invest in its existing businesses and to opportunistically acquire majority control of new businesses, both in financial service sectors and complementary sectors; make seed investments in funds or products managed by TAMCO; and make minority debt or equity investments similar to those investments that Tiptree has made in the past. Accordingly, changes in the mix of Tiptree’s businesses, assets and investments should be expected. Management intends to take a disciplined approach by focusing on investing for the long-term in stable, scalable, cash flow positive businesses.
For additional information about our operating segments, see Note 5 to the financial statements.
Strategy
Tiptree’s primary strategy is to acquire controlling interests in a diversified group of businesses as described above. Tiptree looks for companies that offer sustainable, long-term and stable financial performance. We may also make investments that are not controlling acquisitions, and or invest in debt instruments, and have done so in the past.
Our structure allows us to focus on being long term investors in our companies as some of our companies may require operational turnaround to build shareholder value. We provide managerial assistance to our companies as needed, which at times has included developing growth strategies and providing strategic advice regarding complementary acquisitions and new business initiatives, as well as providing incremental capital.
As part of our strategy, we may also seed new opportunities, which may include new product launches by our existing companies, new asset management products and new businesses to take advantage of market disruptions. Accordingly, over time our mix of businesses may change as a result of new initiatives and new investments.
Recent Developments
The following highlights certain developments during the quarter.

• | Telos CLO 2014-5, Ltd. (“Telos 5”) a $412.4 million collateralized loan obligation vehicle managed by Telos, issued securities on May 1, 2014.

• | On May 21, 2014 the Telos 6 warehouse credit facility was initially capitalized with $25.0 million, and on both July 7, 2014 and August 6, 2014 the Company contributed additional capital of $10.0 million, increasing the warehouse credit facility to $225.0 million.

Trends in Our Business and Outlook
Our results of operations are affected by a variety of factors, including general economic conditions and the resulting trends and market conditions specific to our businesses, some of which are discussed below.
A significant portion of Tiptree’s 2013 and 2014 revenues were generated from administrative fees from our servicing of PFG’s COLI/BOLI policies. We expect the amount of administrative fees to remain relatively constant in 2014 unless significant policy holders terminate policies, in which case our revenues could decline.
46

After several quiet years in the CLO market, there has been increased issuance of CLOs in 2013 and during the first half of 2014, which led to new entrants and greater supply. We issued two new CLOs in 2013, one in 2014 and initiated a warehouse facility for our sixth CLO on May 21, 2014. The initial warehouse limit was $125 million and the limit was increased to $225 million after quarter end. Depending on market conditions, we may seek to initiate a new warehouse facility before the end of 2014. However, uncertainties regarding regulatory guidance in the banking sector resulted in some institutional investors curtailing purchases of CLO liabilities which has had a negative effect on CLO issuances. Credit spreads on AAA tranches have widened and, if not offset by contracting spreads on other liability tranches, could lead to lower returns on the subordinated notes on new CLOs.
The assets of our tax-exempt business, which consist primarily of fixed coupon instruments with long durations, are highly sensitive to changes in interest rates. The large decline in interest rates throughout 2012 significantly increased the market value of the tax-exempt assets. Throughout 2013, interest rates experienced further volatility; however, the overall impact on the value of the tax-exempt assets for the year was relatively modest. The value of the assets have increased in 2014, but it is unclear whether this trend will continue.
Our interest in the asset based lending business was acquired in 2013 and they continue to build their loan portfolio. This business was a negative contributor to net income in 2013, but we expect to reverse this trend as we achieve profitable scale in the second half of 2014, although we can make no assurance that this will be the case.
The mortgage market in which we operate is sensitive to interest rates and expected changes in interest rates. In the late summer and fall of 2013, the volume of mortgages dropped sharply because of changes in interest rates. In addition, it is unclear what impact new mortgage rules may have on volume and profitability in the second half of 2014.
Our expenses increased in the first half of 2014 relative to 2013, primarily from additional expense associated with our acquisitions throughout 2013. Payroll expense and operating expenses increased with the acquisitions at Care LLC, Luxury and Siena. In addition, interest expense increased due to our credit and warehouse facilities. At PFG, the increase was primarily due to increased professional fees and other operating expenses. Management anticipates expenses to increase as these businesses continue to expand.
As a result of the $50 million borrowed under the credit agreement with Fortress and the $44 million of proceeds from the sale of the Bickford Portfolio in our real estate segment during 2013 (as described in Note 17—Dispositions, Assets Held for Sale and Discontinued Operations), we maintained a relatively larger cash balance. In the second half of 2014, we intend to deploy a significant amount of our cash balance to purchase assets, sponsor CLOs, support our existing business and to make new investments. To the extent we are unable to find suitable opportunities to deploy cash effectively, we could experience lower returns than we would expect from the deployment of cash into higher returning assets.
Tiptree Selected Consolidated Financial Data
The results presented in the table below are the consolidated results of Tiptree, which include its majority-owned subsidiaries, PFG, Care, MFCA, Siena, Luxury and TAMCO, as well as principal investments. Since acquisitions and dispositions occurred during the periods discussed below, it may be difficult to compare Tiptree’s results of operations from period to period as a result of purchase accounting adjustments, which only reflect the financial results of a new business from the point of acquisition forward, and dispositions, which are reflected in discontinued operations.
The Contribution Transactions were accounted for as a combination of entities under common control. As a result, the comparative financial information has been retrospectively adjusted to furnish comparative combined financial information from August 2010 (the date of common control). The application of this “as-if-pooling of interests” required the previously issued consolidated financial statements of Tiptree to be recast to reflect such activity.
The acquisition of TAMCO was accounted for as a combination of entities under common control and, as a result, the consolidated results of operations for all periods presented have been retrospectively adjusted to furnish comparative combined financial information as if TAMCO was part of the consolidated group as of January 1, 2010. The application of this “as-if-pooling of interests” required the previously issued consolidated financial statements of Tiptree to be recast to reflect such activity.
GAAP requires the consolidation of a VIE into the financial statements of the entity that is considered the VIE’s primary beneficiary. Generally, TAMCO’s contractual relationship as CLO collateral manager satisfy the criteria for TAMCO to be
47

deemed the primary beneficiary of the CLOs that it manages. As a result, Tiptree is required to consolidate the CLOs into its financial statements. For economic purposes, as of June 30, 2014 the fair value of Tiptree’s direct investments in the subordinated notes of Telos 1, Telos 2, Telos 4 and Telos 5 was $74.5 million. For further detail on non-GAAP measures, see “Economic Net Income and Economic Book Value” within this section.
Income and expenses attributable to consolidated CLOs reflect all of the components of the CLOs: the interest income, interest expense, other related expenses, and most significantly, the mark-to-market of the underlying collateral assets. The unrealized gains and losses of the collateral assets are most affected by credit risk on the individual loans held by the CLOs. If, as a result of movement in the credit market, new loans are made at credit spreads wider than those held by the CLOs, the market value of loans held by the CLOs would decrease and could result in realized and unrealized losses. Since, under GAAP, we do not value the debt issued by the CLOs at market value, we would not recognize an offsetting decrease in the liabilities from such a change in credit spreads, which could make the reported realized and unrealized gains and losses appear larger or smaller than the economic impact on the Company’s results of operations. For economic purposes, we reverse the impact of the CLO consolidation and focus on the mark-to-market value of our underlying subordinated note positions. See “— Economic Net Income and Economic Book Value.”
48

Summary Consolidated Statements of Operations (in thousands)

|  | Three months ended June 30, |  | 2014 vs 2013
|  | 2014 |  | 2013 |  | $ Variance |  | % Variance
Revenues: |  |  |  |  |  |  |  |
Net realized and unrealized gains |  | $ | (935 | ) |  | $ | (3,327 | ) |  | $ | 2,392 |  |  | 71.9 | %
Interest income |  | 4,938 |  |  | 4,188 |  |  | 750 |  |  | 17.9 |
Separate account fees |  | 5,525 |  |  | 5,504 |  |  | 21 |  |  | 0.4 |
Administrative service fees |  | 12,589 |  |  | 12,165 |  |  | 424 |  |  | 3.5 |
Rental revenue |  | 4,393 |  |  | 1,094 |  |  | 3,299 |  |  | 301.6 |
Gain on sale of loans held for sale, net |  | 1,782 |  |  | — |  |  | 1,782 |  |  | 100.0 |
Other income |  | 1,137 |  |  | 158 |  |  | 979 |  |  | 619.6 |
Total revenue |  | 29,429 |  |  | 19,782 |  |  | 9,647 |  |  | 48.8 |
Expenses: |  |  |  |  |  |  |  |
Interest expense |  | 6,259 |  |  | 4,063 |  |  | 2,196 |  |  | 54.0 |
Payroll expense |  | 12,513 |  |  | 8,896 |  |  | 3,617 |  |  | 40.7 |
Professional fees |  | 2,824 |  |  | 2,580 |  |  | 244 |  |  | 9.5 |
Change in future policy benefits |  | 1,072 |  |  | 1,196 |  |  | (124 | ) |  | (10.4 | )
Mortality expenses |  | 2,583 |  |  | 2,638 |  |  | (55 | ) |  | (2.1 | )
Commission expense |  | 174 |  |  | 619 |  |  | (445 | ) |  | (71.9 | )
Depreciation and amortization expense |  | 1,803 |  |  | 1,223 |  |  | 580 |  |  | 47.4 |
Other expenses |  | 3,901 |  |  | 3,021 |  |  | 880 |  |  | 29.1 |
Total expenses |  | 31,129 |  |  | 24,236 |  |  | 6,893 |  |  | 28.4 |
Net income before taxes and income attributable to consolidated CLOs from continuing operations |  | (1,700 | ) |  | (4,454 | ) |  | 2,754 |  |  | 61.8 |
Results of consolidated CLOs: |  |  |  |  |  |  |  |
Income attributable to consolidated CLOs |  | 12,849 |  |  | 5,655 |  |  | 7,194 |  |  | 127.2 |
Expenses attributable to the consolidated CLOs |  | 14,997 |  |  | 11,417 |  |  | 3,580 |  |  | 31.4 |
Net income attributable to consolidated CLOs |  | (2,148 | ) |  | (5,762 | ) |  | 3,614 |  |  | 62.7 |
Income before taxes from continuing operations |  | (3,848 | ) |  | (10,216 | ) |  | 6,368 |  |  | 62.3 |
Less provision for income taxes |  | 497 |  |  | 1,816 |  |  | (1,319 | ) |  | (72.6 | )
(Loss) income from continuing operations |  | (4,345 | ) |  | (12,032 | ) |  | 7,687 |  |  | 63.9 |
Discontinued operations: |  |  |  |  |  |  |  |
Gain on sale of Bickford portfolio, net |  | — |  |  | 15,463 |  |  | (15,463 | ) |  | (100.0 | )
Income from discontinued operations, net |  | — |  |  | 806 |  |  | (806 | ) |  | (100.0 | )
Provision for income taxes |  | — |  |  | — |  |  | — |  |  | NM |
Discontinued operations, net |  | — |  |  | 16,269 |  |  | (16,269 | ) |  | (100.0 | )
Net income |  | (4,345 | ) |  | 4,237 |  |  | (8,582 | ) |  | (202.5 | )
Less net income attributable to noncontrolling interest |  | (747 | ) |  | 10,072 |  |  | (10,819 | ) |  | (107.4 | )
Less net (loss) income attributable to VIE subordinated noteholders |  | (4,669 | ) |  | (9,250 | ) |  | 4,581 |  |  | 49.5 |
Net income available to Class A common stockholders |  | $ | 1,071 |  |  | $ | 3,415 |  |  | $ | (2,344 | ) |  | (68.6 | )%

NM indicates the metric is not meaningful.
49

Statements of Operations Information - Three Months Ended June 30, 2014 compared to 2013
Total revenue
Total revenue for the period ended June 30, 2014 was $29.4 million, compared to $19.8 million for the same period in 2013, an increase of $9.6 million, or 48.8%. This increase was largely due to increases in rental revenue of $3.3 million from newly acquired Care properties, $2.4 million of net realized and unrealized gains on investments primarily from our tax exempt business and the gain on sale of loans held for sale at Luxury of $1.8 million.
Net realized and unrealized gains and losses
Realized and unrealized gains increased by $2.4 million, or 71.9%, for the period ended June 30, 2014 over 2013 levels. The increase from 2013 to 2014 was largely driven by the assets of our tax-exempt business. These assets consist of fixed coupon instruments with long durations that are highly sensitive to changes in interest rates. The decline in interest rates compared to the 2013 period, resulted in $4.4 million of unrealized gains in the three months ended June 30, 2014 compared to the corresponding period in the prior year. This $4.4 million increase was offset, in part by a $1.5 million decline in other investments including credit derivatives and warehouse assets during the period compared to the prior year corresponding period.
Interest income
Interest income on loan and security portfolios increased $0.8 million or 17.9% for the period ended June 30, 2014 compared to the same period in the prior year, largely due to increases in interest income at Siena of $0.7 million and $0.3 million of income recorded for Luxury. These gains were offset, in part, by a decline in interest income of $0.3 million at MFCA. The increase at Siena was due to the increase in lending activity in 2014 compared to 2013. The decline in income at MFCA is consistent with the continued reduction of the portfolio. Tiptree did not own the Luxury business in 2013.
Separate account fees
Separate account fees increased less than $0.1 million, or less than 1%, for the period ended June 30, 2014 compared to the same period in the prior year. This slight increase was the result of higher average assets under management during 2014, which generated higher fees. Separate account assets were $4.8 billion at June 30, 2014 compared to $4.3 billion at June 30, 2013.
Administrative service fees
Administrative service fees increased $0.4 million, or 3.5%, for the period ended June 30, 2014 compared to the same period in the prior year. This increase was due to higher growth in assets under administration.
Gain on sale of loans held for sale, net
Gain on sale of loans held for sale, net for the period ended June 30, 2014 was $1.8 million compared to none in the prior period. This gain relates to the sale of loans within Luxury, which was acquired in the first quarter of 2014.
Other income
Other income increased $0.9 million, or 619.6%, from $0.2 million as of June 30, 2013 to $1.1 million as of June 30, 2014. This increase was largely attributable to the increase of $0.6 million of income at Luxury and increases of $0.2 million at Care and $0.1 million at Siena. Luxury was acquired at the beginning of 2014 and was not included in the corresponding prior year period. The increases at Care related to income and resident fees at Care’s newly acquired properties, Heritage and Premier. The increase at Siena is consistent with the increase in lending activity in 2014 compared to 2013.
Rental revenue
Rental revenues for the period ended June 30, 2014 from Care LLC were $4.4 million, an increase over the comparable period in 2013 due to Care LLC’s acquisition of additional properties that were not owned in the prior period.
Total expenses
Total expenses for the period ended June 30, 2014 were $31.1 million compared to $24.2 million for the same period in 2013, an increase of $6.9 million, or 28.4%. The increase was largely attributable to increases in payroll and other expenses of $3.6
50

million and $0.9 million, respectively, relating to property acquisitions at Care and the acquisitions of Siena in 2013 and Luxury during 2014. There were also increases in interest expense of $2.2 million largely due to borrowings under Tiptree’s credit facility and additional interest expense at Siena and at Luxury.
Interest expense
The $2.2 million increase in interest expense for the period ended June 30, 2014 over the same period in 2013 was a result of $0.6 million related to borrowings associated with newly acquired real estate operations at Care and $1.5 million related to Tiptree’s credit facility. Tiptree closed its credit facility during the third quarter of 2013 and as a result did not incur this expense in the prior year corresponding period.
Payroll expense
The $3.6 million increase in payroll expense for the period ended June 30, 2014 over the same period in 2013 consists of a $3.0 million increase relating to Siena and Luxury and a $1.1 million increase relating to Care. The increase in payroll expense at Care is primarily due to consolidation of the operations of Heritage and Calamar in the period ended June 30, 2014. These properties were acquired later in the year in 2013 and were not included in the results for the three months ended June 30, 2013. These increases were offset, in part, due to net declines in expenses at other subsidiaries of approximately $0.5 million.
Depreciation and amortization expense
The $0.6 million increase in depreciation and amortization expense for the period ended June 30, 2014 compared to the same period in 2013 relates to an increase in depreciation expense largely as a result of the new properties acquired by Care in 2013 and depreciation expense relating to the Siena and Luxury acquisitions.
Other expenses
The $0.9 million increase in other expenses for the period ended June 30, 2014 compared to the same period in 2013 largely consists of expenses relating to Luxury.
Income attributable to consolidated CLOs
Income attributable to consolidated CLOs was $12.8 million in 2014 compared to $5.7 million in 2013, an increase of $7.1 million, or 127.2%. This increase relates to an increase in unrealized gains relating to loans and interest income of $5.0 million and $2.1 million, respectively.
Expenses attributable to the consolidated CLOs
The $3.6 million increase in expense attributable to the consolidated CLOs largely relates to $3.3 million of expenses associated with Telos 5, which was issued during the second quarter of 2014.
Provision for income taxes
The provision for income taxes declined $1.3 million for the period ended June 30, 2014 from an income tax expense of $1.8 million in the prior period to an income tax expense of $0.5 million in the current period. Comparison with prior periods is not meaningful as the Company’s tax status prior to June 30, 2013 was that of a REIT.
Discontinued operations, net
Discontinued operations, net, decreased $16.3 million, or 100%, for the period ended June 30, 2014 compared to the same period in 2013. This is comprised of the income related to the Bickford Portfolio in 2013. For more detail on the Bickford Portfolio sale see Note 17—Dispositions, Assets Held for Sale and Discontinued Operations within the accompanying consolidated financial statements.
Net income attributable to noncontrolling interest
Net income attributable to noncontrolling interest represents the portion of net income generated by consolidated entities that are not attributable to Tiptree’s ownership interest in those entities.
51

Net (loss) income attributable to VIE subordinated noteholders
Since Tiptree consolidates the VIEs, all of the net income and expense of the VIEs are included in its consolidated results, even though Tiptree only benefits from the net income and incurs the net loss of the portion of the VIEs owned by it. Net (loss) income attributable to the VIE subordinated noteholders represents net (loss) income not attributable to Tiptree’s ownership interest in the VIEs. Therefore, higher net losses attributable to VIE subordinated noteholders increases net income available to Tiptree Class A stockholders. Conversely, higher income attributable to VIE subordinated noteholders decreases net income available to Tiptree Class A stockholders. The net loss attributable to the VIE subordinated noteholders for the period ended June 30, 2014 was $4.7 million, compared to $9.3 million for the same period in 2013, a decrease of $4.6 million. The decrease was primarily due to a gain of $3.5 million in Telos 1, combined with a net gain of $1.0 million in the remaining Telos CLOs.
Net income available to Class A common stockholders
The net income available to Class A common stockholders for the period ended June 30, 2014 was $1.1 million compared to net income of $3.4 million for the same period in 2013, a decrease of $2.3 million, or 68.6%. This decrease was largely due to the decline of $16.3 million from discontinued operations, partially offset by the $2.8 million increase in net income before taxes and income attributable to the CLOs and the $3.6 million increase in net income attributable to consolidated CLOs. This decline, combined with the decline of $4.6 million in the net loss attributable to VIE subordinated noteholders, and the $1.3 million and $10.8 million declines in the provision for income taxes and net income attributable to the noncontrolling interest, respectively, both of which have a beneficial affect to income available to Class A common stockholders, largely resulted in the overall $2.3 million decline for the quarter.
52

|  | Six months ended June 30, |  | 2014 vs 2013
|  | 2014 |  | 2013 |  | $ Variance |  | % Variance
Revenues: |  |  |  |  |  |  |  |
Net realized and unrealized gains |  | $ | 67 |  |  | $ | (2,526 | ) |  | $ | 2,593 |  |  | 102.7 | %
Interest income |  | 10,301 |  |  | 7,215 |  |  | 3,086 |  |  | 42.8 |
Separate account fees |  | 11,012 |  |  | 10,810 |  |  | 202 |  |  | 1.9 |
Administrative service fees |  | 24,941 |  |  | 24,096 |  |  | 845 |  |  | 3.5 |
Rental revenue |  | 8,839 |  |  | 1,916 |  |  | 6,923 |  |  | NM |
Gain on sale of loans held for sale, net |  | 2,734 |  |  | — |  |  | 2,734 |  |  | 100.0 |
Other income |  | 1,867 |  |  | 376 |  |  | 1,491 |  |  | 396.5 |
Total revenue |  | 59,761 |  |  | 41,887 |  |  | 17,874 |  |  | 42.7 |
Expenses: |  |  |  |  |  |  |  |
Interest expense |  | 12,221 |  |  | 7,898 |  |  | 4,323 |  |  | 54.7 |
Payroll expense |  | 23,083 |  |  | 17,524 |  |  | 5,559 |  |  | 31.7 |
Professional fees |  | 3,914 |  |  | 3,952 |  |  | (38 | ) |  | (1.0 | )
Change in future policy benefits |  | 2,197 |  |  | 2,313 |  |  | (116 | ) |  | (5.0 | )
Mortality expenses |  | 5,225 |  |  | 5,252 |  |  | (27 | ) |  | (0.5 | )
Commission expense |  | 1,158 |  |  | 1,174 |  |  | (16 | ) |  | (1.4 | )
Depreciation and amortization expense |  | 3,366 |  |  | 2,166 |  |  | 1,200 |  |  | 55.4 |
Other expenses |  | 10,057 |  |  | 6,495 |  |  | 3,562 |  |  | 54.8 |
Total expenses |  | 61,221 |  |  | 46,774 |  |  | 14,447 |  |  | 30.9 |
Net income before taxes and income attributable to consolidated CLOs from continuing operations |  | (1,460 | ) |  | (4,887 | ) |  | 3,427 |  |  | 70.1 |
Results of consolidated CLOs: |  |  |  |  |  |  |  |
Income attributable to consolidated CLOs |  | 24,835 |  |  | 22,219 |  |  | 2,616 |  |  | 11.8 |
Expenses attributable to the consolidated CLOs |  | 28,989 |  |  | 21,238 |  |  | 7,751 |  |  | 36.5 |
Net income attributable to consolidated CLOs |  | (4,154 | ) |  | 981 |  |  | (5,135 | ) |  | (523.4 | )
Income before taxes from continuing operations |  | (5,614 | ) |  | (3,906 | ) |  | (1,708 | ) |  | (43.7 | )
Less provision for income taxes |  | 926 |  |  | 3,115 |  |  | (2,189 | ) |  | NM |
(Loss) income from continuing operations |  | (6,540 | ) |  | (7,021 | ) |  | 481 |  |  | 6.9 |
Discontinued operations: |  |  |  |  |  |  |  |
Gain on sale of Bickford portfolio, net |  | — |  |  | 15,463 |  |  | (15,463 | ) |  | (100.0 | )
Income from discontinued operations, net |  | — |  |  | 1,647 |  |  | (1,647 | ) |  | (100.0 | )
Provision for income taxes |  | — |  |  | — |  |  | — |  |  | NM |
Discontinued operations, net |  | — |  |  | 17,110 |  |  | (17,110 | ) |  | (100.0 | )
Net income |  | (6,540 | ) |  | 10,089 |  |  | (16,629 | ) |  | (164.8 | )
Less net income attributable to noncontrolling interest |  | (449 | ) |  | 14,177 |  |  | (14,626 | ) |  | (103.2 | )
Less net (loss) income attributable to VIE subordinated noteholders |  | (8,187 | ) |  | (8,821 | ) |  | 634 |  |  | NM |
Net income available to Class A common stockholders |  | $ | 2,096 |  |  | $ | 4,733 |  |  | $ | (2,637 | ) |  | (55.7 | )%

NM indicates the metric is not meaningful.
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Statements of Operations Information - Six Months Ended June 30, 2014 Compared to 2013
Total revenue
Total revenue for the period ended June 30, 2014 was $59.8 million, compared to $41.9 million for the same period in 2013, an increase of $17.9 million, or 42.7%. This increase was largely due to increases in rental revenue of $6.9 million from newly acquired Care properties, interest income of $3.1 million from acquired entities, a $2.7 million gain on sale of loans held for sale at Luxury, net and $2.6 million of net realized and unrealized gains on investments primarily from our tax exempt business.
Net realized and unrealized gains and losses
Realized and unrealized gains increased by $2.6 million, or 102.7%, for the period ended June 30, 2014 over 2013 levels. The increase from 2013 to 2014 was largely driven by the assets of the tax-exempt business. These assets consist of fixed coupon instruments with long durations that are highly sensitive to changes in interest rates. The decline in interest rates compared to the 2013 period, resulted in $5.3 million of unrealized gains in 2014. This $5.3 million increase was offset, in part, by a $1.9 million overall decline in other investments including credit derivatives and warehouse assets for the period ended June 30, 2014 compared to the prior year period and a $0.7 million decline in income from investments in partially owned entities, principally Star Asia.
Interest income
Interest income on loan and security portfolios increased $3.1 million, or 42.8%, for the period ended June 30, 2014 compared to the same period in the prior year, largely due to increases in income of $2.4 million related to Tiptree’s investment holdings, income at Siena of $0.9 million and $0.6 million of income recorded for Luxury. These gains were offset, in part, by a decline in interest income of $0.6 million at MFCA. The increase in interest income included $1.1 million related to the investment in the warehouse and $0.4 million related to credit derivatives. The increase at Siena was consistent with the increase in lending activity in 2014 compared to 2013. The decline in income at MFCA was due to continued reduction of the portfolio. Tiptree did not own the Luxury business in 2013.
Separate account fees
Separate account fees increased $0.2 million, or 1.9%, for the period ended June 30, 2014 compared to the same period in the prior year. This increase was the result of higher average assets under management during 2014, which generated higher fees. Separate account assets were $4.8 billion at June 30, 2014 compared to $4.3 billion at June 30, 2013.
Administrative service fees
Administrative service fees increased $0.8 million, or 3.5%, for the period ended June 30, 2014 compared to the same period in the prior year. This increase was due to higher growth in assets under administration.
Rental revenue
Rental revenues for the period ended June 30, 2014 from Care LLC were $8.8 million, an increase over the comparable period in 2013 due to Care LLC’s acquisition of additional properties that were not owned in the prior period.
Gain on sale of loans held for sale, net
Gain on sale of loans held for sale, net for the period ended June 30, 2014 was $2.7 million compared to none in the prior period. This gain relates to the sale of loans within Luxury, which was acquired in the first quarter of 2014.
Other income
Other income increased $1.5 million, or 396.5%, from $0.4 million as of June 30, 2013 to $1.9 million as of June 30, 2014. This increase was largely attributable to the increase of $0.6 million of income at Luxury as well as increases of $0.3 million at Care and $0.5 million at Siena. Luxury was acquired at the beginning of the year and was not included in the prior year comparative period. The increases at Care related to income and resident fees at Care’s newly acquired properties, Heritage and Premier. The increase at Siena was consistent with the increase in lending activity in 2014 compared to 2013.
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Total expenses
Total expenses for the period ended June 30, 2014 were $61.2 million compared to $46.8 million for the same period in 2013, an increase of $14.4 million, or 30.9%. The increase was largely attributable to increases in payroll and other expenses of $5.6 million and $3.6 million, respectively, relating to property acquisitions at Care and the acquisitions of Siena in 2013 and Luxury during 2014. There were also increases in interest expense of $4.3 million largely due to Tiptree’s credit facility.
Interest expense
The $4.3 million increase in interest expense for the period ended June 30, 2014 over the same period in 2013, was a result of $1.2 million related to borrowings associated with newly acquired real estate operations and $2.5 million related to Tiptree’s credit facility. Tiptree closed its credit facility during the third quarter of 2013 and as a result did not incur this expense in the prior year corresponding period. Interest expense also increased $0.6 million relating to Siena and Luxury for the period ended June 30, 2014. Siena’s interest expense increased commensurate with borrowings as activity increased in 2014 and Tiptree did not own Luxury in the prior year corresponding period.
Payroll expense
The $5.6 million increase in payroll expense for the period ended June 30, 2014 over the same period in 2013 consisted of a $4.1 million increase relating to Siena and Luxury and a $2.5 million increase relating to Care. The increase in payroll expense at Care was primarily due to the consolidation of the payroll expense of the operating companies of the Heritage and Calamar joint ventures attributable to the employees of the management companies thereof in the period ended June 30, 2014. These properties were acquired later in the year in 2013 and were not included in the results for the period ended June 30, 2013. These increases were offset, in part, due to net declines in expenses at TAMCO and other subsidiaries of approximately $1.1 million.
Depreciation and amortization expense
The $1.2 million increase in depreciation and amortization expense for the period ended June 30, 2014 compared to the corresponding period in 2013 related to an increase in depreciation expense largely as a result of the new properties acquired by Care in 2013 and depreciation expense relating to the Siena and Luxury acquisitions.
Other expenses
The $3.6 million increase in other expenses for the period ended June 30, 2014 compared to the same period in 2013 largely consisted of expenses attributable to Care relating to the operations of Heritage and Calamar. An increase of $0.6 million related to increased costs at PFG related to an office relocation occurring in 2014 and $1.3 million of expenses related to Luxury, which Tiptree did not own in the prior year corresponding period, also contributed to the increase for the period.
Income attributable to consolidated CLOs
Income attributable to consolidated CLOs was $24.8 million in 2014 compared to $22.2 million in 2013, an increase of $2.6 million, or 11.8%. This increase resulted from an increase in interest income of $6.7 million and an increase of unrealized gains related to loans of $2.1 million, partially offset by realized losses of $6.2 million. The increase in interest income was primarily attributable to interest income from Telos 4 and Telos 5, which had not closed in the prior year corresponding period. The increase in realized losses in the consolidated CLOs was primarily related to Telos 1 and Telos 2, which are beyond their reinvestment period. Telos 1 and Telos 2 have entered their pay down period in which tranches of debt issued by the CLO are repaid in accordance with the CLOs’ priority of payments. As the debt tranches, which are currently booked at discounted carrying value are paid down at par, a realized loss is recorded by the CLO.
Expenses attributable to the consolidated CLOs
The $7.8 million increase in expenses attributable to the consolidated CLOs consists of expenses associated with Telos 4 and Telos 5 incurred in the period ended June 30, 2014, but which had not closed during the prior year corresponding period.
Provision for income taxes
The provision for income taxes decreased $2.2 million for the period ended June 30, 2014 from an income tax expense of $3.1 million in the prior period to an income tax expense of $0.9 million in the current period. Comparison with prior periods is not meaningful as the Company’s tax status prior to June 30, 2013 was that of a REIT.
55

Discontinued operations, net
Discontinued operations, net, decreased $17.1 million, or 100%, for the period ended June 30, 2014 compared to the same period in 2013. This was comprised of the income related to the Bickford Portfolio in 2013. For more detail on the Bickford Portfolio sale see Note 17—Dispositions, Assets Held for Sale and Discontinued Operations within the accompanying consolidated financial statements.
Net income attributable to noncontrolling interest
Net income attributable to noncontrolling interest represents the portion of net income generated by consolidated entities that are not attributable to Tiptree’s ownership interest in those entities.
Net (loss) income attributable to VIE subordinated noteholders
Since Tiptree consolidates the VIEs, all of the net income and expense of the VIEs is included in its consolidated results, even though Tiptree only benefits from the net income and incurs the net loss of the portion of the VIEs owned by it. Net (loss) income attributable to the VIE subordinated noteholders represents net (loss) income not attributable to Tiptree’s ownership interest in the VIEs. Therefore, higher net losses attributable to VIE subordinated noteholders increases net income available to Tiptree Class A stockholders. Conversely, higher income attributable to VIE subordinated noteholders decreases net income available to Tiptree Class A stockholders. The net loss attributable to the VIE subordinated noteholders for the period ended June 30, 2014 was $8.2 million, compared to a net loss of $8.8 million for the same period in 2013, an increase of $0.6 million. The increase was largely due to income from Telos 4 and Telos 5 of $1.0 million partially offset by net losses of $0.4 million from Telos 1, Telos 2 and Telos 3.
Net income available to Class A common stockholders
Net income available to Class A common stockholders for the period ended June 30, 2014 was $2.1 million, compared to net income of $4.7 million for the same period in 2013, a decrease of $2.6 million, or 55.7%. This decrease was largely due to the decline of $17.1 million and $5.1 million in discontinued operations, net and income attributable to the CLOs, respectively. These declines were offset, in part, by the increase of $3.4 million in net income before taxes and income attributable to CLOs and a decline in tax expense of $2.1 million. This decline, combined with the decline of $0.6 million in the net loss attributable to VIE subordinated noteholders and the $14.6 million decline in net income attributable to the noncontrolling interest, which has a beneficial affect to income available to Class A common stockholders, largely resulted in the overall $2.6 million decline for the year.
Balance Sheet Information - June 30, 2014 Compared to December 31, 2013
Tiptree’s total assets increased $498.2 million, or 7.2%, at June 30, 2014 compared to year end December 31, 2013. This increase was largely driven by the increase in assets of consolidated CLOs of $344.3 million due to the issuance of Telos 5, the increase of $174.5 million of separate account assets at PFG and $25.1 million of loans held for resale at fair value at Luxury offset, in part, by the decline of $48.9 million of investment in loans from the closing of Telos 5.
Total liabilities increased $502.8 million over the prior year end largely due to an increase in separate account liabilities at PFG of $174.5 million, an increase in liabilities on the consolidated CLOs of $346.5 million due to the issuance of Telos 5, and increase in due to brokers, dealers and trustees of $62.9 million relating to the warehouse, offset, in part, by a decrease in debt of $74.9 million from the closing of the Telos 5 warehouse and a decline in policy liabilities of $9.5 million at PFG.
Segment Reporting
Tiptree has four reportable operating segments: insurance and insurance services, specialty finance, asset management and real estate (see Note 5 of the consolidated financial statements for a more detailed description of our segments). Tiptree’s operating segments are organized in a manner that reflects how management views its operations.
Intersegment revenues refers to those items of revenue which will be eliminated upon consolidation. Included in revenue, expense, interest revenue, interest expense, segment profit/(loss), and segment assets are items which are eliminated upon consolidation
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as well as adjustments for discontinued operations, reclassifications, assets of consolidated CLOs and non-controlling interest. These items are classified as “corporate eliminations and other” in the tables below.
The material components of “corporate eliminations and other” are as follows: (i) for total revenue, rental revenue from discontinued operations as well as Tiptree’s portion of interest income from the consolidated CLOs, (ii) for total expense, interest expense and depreciation/amortization expense associated with discontinued operations, and (iii) for total assets, the assets of the consolidated CLOs.
Each reportable segment’s measure of profit/(loss) is reported before income taxes and includes discontinued operations and non-controlling interest, as this is how management views its segments.

| Three months ended June 30, 2014
| Insurance and insurance services |  | Specialty finance |  | Asset management |  | Real estate |  | Corporate eliminations and other |  | Totals
Fee income | $ | 18,114 |  | (1 | ) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 18,114 |
Rental revenue | — |  |  | — |  |  | — |  |  | 4,375 |  |  | 18 |  |  | 4,393 |
Interest income | 1,145 |  |  | 6,643 |  |  | — |  |  | 682 |  |  | (3,532 | ) |  | 4,938 |
Other revenue | 9 |  |  | 1,871 |  |  | 442 |  | (2) | 113 |  |  | (451 | ) |  | 1,984 |
Intersegment revenues | — |  |  | 110 |  |  | 2,943 |  | (2) | — |  |  | (3,053 | ) |  | — |
Total revenue | 19,268 |  |  | 8,624 |  |  | 3,385 |  |  | 5,170 |  |  | (7,018 | ) |  | 29,429 |
Interest expense | 2,897 |  |  | 2,340 |  |  | — |  |  | 978 |  |  | 44 |  |  | 6,259 |
Payroll expense | 4,788 |  |  | 3,237 |  |  | 2,772 |  |  | 1,716 |  |  | — |  |  | 12,513 |
Professional fee expense | 734 |  |  | 1,329 |  |  | 252 |  |  | 117 |  |  | 392 |  |  | 2,824 |
Other expense | 7,087 |  |  | 898 |  |  | 372 |  |  | 1,952 |  |  | (776 | ) |  | 9,533 |
Total expense | 15,506 |  |  | 7,804 |  |  | 3,396 |  |  | 4,763 |  |  | (340 | ) |  | 31,129 |
Segment profit/(loss) | $ | 3,762 |  |  | $ | 820 |  |  | $ | (11 | ) |  | $ | 407 |  |  | $ | (6,678 | ) |  | $ | (1,700 | )
Net loss attributable to consolidated CLOs |  |  |  |  |  |  |  |  |  |  | (2,148 | )
Less: non-controlling interest and net income attributable to the VIE subordinated noteholders |  |  |  |  |  |  |  |  |  |  | (5,416 | )
Discontinued operations |  |  |  |  |  |  |  |  |  |  | — |
Income taxes |  |  |  |  |  |  |  |  |  |  | 497 |
Net income available to common stockholders |  |  |  |  |  |  |  |  |  |  | $ | 1,071 |

(1) Includes separate account and administrative servicing fees.
(2) Includes management fees, which is a component of other income on the Company’s Consolidated Statements of Operations.
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| Three months ended June 30, 2013
| Insurance and insurance services |  | Specialty finance |  | Asset management |  | Real estate |  | Corporate eliminations and other |  | Totals
Fee income | $ | 17,669 |  | (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 17,669 |
Rental revenue | — |  |  | — |  |  | — |  |  | 3,995 |  |  | (2,901 | ) |  | 1,094 |
Interest income | 1,226 |  |  | 5,720 |  |  | — |  |  | 587 |  |  | (3,345 | ) |  | 4,188 |
Other revenue/unrealized (loss) | 40 |  |  | (4,401 | ) |  | 74 |  | (2) | 17,153 |  |  | (16,035 | ) |  | (3,169 | )
Intersegment revenues | — |  |  | 47 |  |  | 5,141 |  | (2) | — |  |  | (5,188 | ) |  | — |
Total revenue | 18,935 |  |  | 1,366 |  |  | 5,215 |  |  | 21,735 |  |  | (27,469 | ) |  | 19,782 |
Interest expense | 3,129 |  |  | 570 |  |  | — |  |  | 1,711 |  |  | (1,347 | ) |  | 4,063 |
Payroll expense | 4,595 |  |  | 269 |  |  | 3,450 |  |  | 582 |  |  | — |  |  | 8,896 |
Professional fee expense | 336 |  |  | 841 |  |  | 216 |  |  | 1,187 |  |  | — |  |  | 2,580 |
Other expense | 6,681 |  |  | 672 |  |  | 203 |  |  | 2,981 |  |  | (1,840 | ) |  | 8,697 |
Total expense | 14,741 |  |  | 2,352 |  |  | 3,869 |  |  | 6,461 |  |  | (3,187 | ) |  | 24,236 |
Segment profit/(loss) | $ | 4,194 |  |  | $ | (986 | ) |  | $ | 1,346 |  |  | $ | 15,274 |  |  | $ | (24,282 | ) |  | $ | (4,454 | )
Net loss attributable to consolidated CLOs |  |  |  |  |  |  |  |  |  |  | (5,762 | )
Less: non-controlling interest and net income attributable to the VIE subordinated noteholders |  |  |  |  |  |  |  |  |  |  | 822 |
Discontinued operations |  |  |  |  |  |  |  |  |  |  | 16,269 |
Income taxes |  |  |  |  |  |  |  |  |  |  | 1,816 |
Net income available to common stockholders |  |  |  |  |  |  |  |  |  |  | $ | 3,415 |

(1) Includes separate account and administrative servicing fees.
(2) Includes management fees, which is a component of other income on the Company’s Consolidated Statements of Operations.
Segment Results - Three month Period Ended June 30, 2014 Compared to 2013
Insurance and Insurance Services Operations
Total revenues for insurance operations were $19.3 million for the three month period ended 2014, compared to $18.9 million for the same period in 2013, representing an increase of $0.4 million, or 2.1%. The primary driver of the increase was increased fee income from separate account fees and administrative service fees.
Total expenses for insurance operations for the three month periods ended June 30, 2014 and 2013 were $15.5 million and $14.7 million, respectively. This increase of $0.8 million was primarily attributable to increases in payroll and other expense, offset, in part, by a decline in interest expense.
Total operating profit for insurance operations for 2014 was $3.8 million, compared to $4.2 million for 2013, a decrease of $0.4 million, or 9.5%. This decrease was primarily the result of an increased expense base being offset by an increased fee income on administrative service fees.
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Specialty Finance Operations
Total revenues for specialty finance operations for the three month period ended June 30, 2014 were $8.6 million, compared to $1.4 million for 2013, an increase of $7.2 million, or 514.3%. The increase was attributable to an increase in unrealized gains in 2014 due to increases in market values (from the MFCA portfolio) in 2014, as well as gains on the sale of loans from Luxury of $1.9 million. Also contributing to the increase was an increase in interest income of $0.9 million due to the revenue from the additional positions related to the warehouse facilities. In 2013, this was related to the Telos 3 and Telos 4 warehouse facilities. In 2014, this related to the Telos 5 and Telos 6 warehouse facilities.
Total expenses for specialty finance operations for the three month period ended June 30, 2014 were $7.8 million, compared to $2.4 million for 2013, an increase of $5.4 million, or 225%. The increase was primarily the result of increases in interest expense of $1.8 million and payroll expense of $3.0 million due to the the inclusion of Siena and Luxury in results for 2014.
Total operating profit for specialty finance operations for the three month period ended June 30, 2014 was $0.8 million, compared to a loss of $1.0 million for 2013, an increase of $1.8 million, or 180%. This increase was driven primarily by the increase in interest income from the additional CLO warehouse facility positions, partially offset by the inclusion of the expenses of Siena and Luxury in the Company’s 2014 results.
Asset Management Operations
Total revenues for asset management were $3.4 million for the three month period ended June 30, 2014, a decrease of $1.8 million or 34.6% compared to $5.2 million for 2013. The decrease in revenue in 2014 was primarily attributable to lower management fees received from Telos 1 and Telos 2, offset in part by management fees received from the addition of Telos 4 and Telos 5 in 2014.
Total expenses for asset management were $3.4 million for the three month period ended June 30, 2014 compared to $3.9 million for 2013. This decrease of $0.5 million was primarily attributable to lower compensation related costs in 2014.
Total operating loss for asset management was less than $0.1 million for the three month period ended June 30, 2014 compared to income of $1.3 million in 2013, a decrease of $1.4 million, or 108%. The primary driver of this decrease was lower management fee revenues in 2014, as the management fees associated with the Bickford portfolio ended with the sale in 2013.
Real Estate Operations
Total revenues for real estate operations for the three month period ended June 30, 2014 were $5.2 million, compared to $21.7 million for 2013, a decrease of $16.5 million, or 76%. This decrease was due to the gain on the sale of the Bickford property in 2013.
Total expenses for real estate operations for the three months ended June 30, 2014 were $4.8 million, compared to $6.5 million for 2013, a decrease of $1.7 million, or 26.2%. This decrease was primarily due to lower interest expense and other expense, offset in part by higher payroll expense. Payroll expense increased during the 2014 period due to the consolidation of the operations of Heritage and Calamar in 2014.
Total operating profit for real estate operations for 2014 was $0.4 million, compared to $15.3 million in 2013, a decrease of $14.9 million. The driver of this decrease was due to the gain on the sale of the Bickford property in 2013.
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| Six months ended June 30, 2014
| Insurance and insurance services |  | Specialty finance |  | Asset management |  | Real estate |  | Corporate eliminations and other |  | Totals
Fee income | $ | 35,953 |  | (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 35,953 |
Rental revenue | — |  |  | — |  |  | — |  |  | 8,821 |  |  | 18 |  |  | 8,839 |
Interest income | 2,333 |  |  | 13,959 |  |  | — |  |  | 1,365 |  |  | (7,356 | ) |  | 10,301 |
Other revenue | 14 |  |  | 4,370 |  |  | 537 |  | (2) | 342 |  |  | (595 | ) |  | 4,668 |
Intersegment revenues | — |  |  | 187 |  |  | 6,311 |  | (2) | — |  |  | (6,498 | ) |  | — |
Total revenue | $ | 38,300 |  |  | $ | 18,516 |  |  | $ | 6,848 |  |  | $ | 10,528 |  |  | $ | (14,431 | ) |  | $ | 59,761 |
Interest expense | $ | 5,810 |  |  | $ | 4,487 |  |  | $ | — |  |  | $ | 1,956 |  |  | $ | (32 | ) |  | $ | 12,221 |
Payroll expense | 10,070 |  |  | 4,415 |  |  | 5,084 |  |  | 3,514 |  |  | — |  |  | 23,083 |
Professional fee expense | 924 |  |  | 2,182 |  |  | 467 |  |  | 172 |  |  | 169 |  |  | 3,914 |
Other expense | 15,361 |  |  | 2,675 |  |  | 703 |  |  | 4,071 |  |  | (807 | ) |  | 22,003 |
Total expense | 32,165 |  |  | 13,759 |  |  | 6,254 |  |  | 9,713 |  |  | (670 | ) |  | 61,221 |
Segment profit/(loss) | $ | 6,135 |  |  | $ | 4,757 |  |  | $ | 594 |  |  | $ | 815 |  |  | $ | (13,761 | ) |  | $ | (1,460 | )
Net loss attributable to consolidated CLOs |  |  |  |  |  |  |  |  |  |  | (4,154 | )
Less: non-controlling interest and net income attributable to the VIE subordinated noteholders |  |  |  |  |  |  |  |  |  |  | (8,636 | )
Discontinued operations |  |  |  |  |  |  |  |  |  |  | — |
Income taxes |  |  |  |  |  |  |  |  |  |  | 926 |
Net income available to common stockholders |  |  |  |  |  |  |  |  |  |  | 2,096 |
Segment assets as of June 30, 2014 | $ | 5,114,648 |  |  | $ | 396,366 |  |  | $ | 11,879 |  | (3) | $ | 150,844 |  |  | $ | 1,704,894 |  |  | $ | 7,378,631 |

(1) Includes separate account and administrative servicing fees.
(2) Includes management fees, which is a component of other income on the Company’s Consolidated Statements of Operations.
(3) Refer to Management’s Discussion and Analysis—Economic Net Income Components for further information on assets under management.
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| Six months ended June 30, 2013
| Insurance and insurance services |  | Specialty finance |  | Asset management |  | Real estate |  | Corporate eliminations and other |  | Totals
Fee income | $ | 34,906 |  | (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 34,906 |
Rental revenue | — |  |  | — |  |  | — |  |  | 7,836 |  |  | (5,920 | ) |  | 1,916 |
Interest income | 2,407 |  |  | 10,728 |  |  | — |  |  | 911 |  |  | (6,832 | ) |  | 7,214 |
Other revenue/ unrealized (loss) | 72 |  |  | (3,836 | ) |  | 211 |  | (2) | 17,608 |  |  | (16,204 | ) |  | (2,149 | )
Intersegment revenues | — |  |  | 164 |  |  | 8,874 |  | (2) | — |  |  | (9,038 | ) |  | — |
Total revenue | $ | 37,385 |  |  | $ | 7,056 |  |  | $ | 9,085 |  |  | $ | 26,355 |  |  | $ | (37,994 | ) |  | $ | 41,887 |
Interest expense | $ | 6,263 |  |  | $ | 1,064 |  |  | $ | — |  |  | $ | 3,362 |  |  | $ | (2,791 | ) |  | $ | 7,898 |
Payroll expense | 9,611 |  |  | 276 |  |  | 6,669 |  |  | 968 |  |  | — |  |  | 17,524 |
Professional fee expense | 659 |  |  | 1,673 |  |  | 431 |  |  | 1,189 |  |  | — |  |  | 3,952 |
Other expense | 14,858 |  |  | 1,245 |  |  | 338 |  |  | 5,706 |  |  | (4,747 | ) |  | 17,400 |
Total expense | 31,391 |  |  | 4,258 |  |  | 7,438 |  |  | 11,225 |  |  | (7,538 | ) |  | 46,774 |
Segment profit/(loss) | $ | 5,994 |  |  | $ | 2,798 |  |  | $ | 1,647 |  |  | $ | 15,130 |  |  | $ | (30,456 | ) |  | $ | (4,887 | )
Net income attributable to consolidated CLOs |  |  |  |  |  |  |  |  |  |  | 981 |
Less: non-controlling interest and net income attributable to the VIE subordinated noteholders |  |  |  |  |  |  |  |  |  |  | 5,356 |
Discontinued operations |  |  |  |  |  |  |  |  |  |  | 17,110 |
Income taxes |  |  |  |  |  |  |  |  |  |  | 3,115 |
Net income available to common stockholders |  |  |  |  |  |  |  |  |  |  | 4,733 |
Segment assets as of December 31, 2013 | $ | 4,949,262 |  |  | $ | 385,987 |  |  | $ | 7,896 |  | (3) | $ | 170,683 |  |  | $ | 1,366,620 |  |  | $ | 6,880,448 |

(1) Includes separate account and administrative servicing fees.
(2) Includes management fees, which is a component of other income on the Company’s Consolidated Statements of Operations.
(3) Refer to Management’s Discussion and Analysis—Economic Net Income Components for further information on assets under management.
Segment Results - Year to date June 30, 2014 Compared to 2013
Insurance and Insurance Services Operations
Total revenues for insurance operations were $38.3 million for the six month period ended June 30, 2014, compared to $37.4 million for the same period in 2013, representing an increase of $0.9 million, or 2.4%. The primary driver of the increase was increased fee income from separate account fees and administrative service fees.
Total expenses for insurance operations for the periods ended June 30, 2014 and 2013 were $32.2 million and $31.4 million, respectively. This increase of $0.8 million was primarily due to increases in payroll and costs associated with a build out and office relocation, offset in part by a decline in interest expense on notes payable.
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Total operating profit for insurance operations for 2014 was $6.1 million, relatively flat when compared to $6.0 million for 2013, as increases in income from administrative service fees were offset by a higher expense base.
Specialty Finance Operations
Total revenues for specialty finance operations for the six month period ended June 30, 2014 were $18.5 million, compared to $7.1 million for 2013, an increase of $11.4 million, or 161%. The increase was attributable in part to unrealized gains of $1.0 million in 2014 compared to unrealized losses of $2.4 million in 2013, due to increases in market values (from the MFCA portfolio) in 2014. Also a contributor to the increase in revenue in 2014 was $2.7 million from Luxury’s gains on the sale of loans as well as an increase in interest income of $3.2 million, largely due to the revenue from the additional positions related to the warehouse facilities. In 2013, this interest income was related to the Telos 3 and Telos 4 warehouse facilities. In 2014, it related to the warehouse facilities.
Total expenses for specialty finance operations for the six months ended June 30, 2014 were $13.8 million, compared to $4.3 million for 2013, an increase of $9.5 million, or 221%. The increase was primarily the result of increases in interest expense of $3.4 million, payroll expense of $4.1 million and other expense of $1.5 million due to the the inclusion of Siena and Luxury in results for 2014.
Total operating profit for specialty finance operations for the six month period in 2014 was $4.8 million, compared to $2.8 million for 2013, an increase of $2.0 million, or 71.4%. This increase was driven primarily by the increase in interest income from the additional CLO warehouse facility positions, offset by the inclusion of the expenses of Siena and Luxury in the Company’s 2014 results.
Asset Management Operations
Total revenues for asset management were $6.8 million for the six month period ended June 30, 2014, a decrease of $2.3 million, or 25.3%, compared to $9.1 million for 2013. The decrease in revenue in 2014 was primarily attributable to lower management fees received from Telos 1 and Telos 2, offset in part by the addition of Telos 3 and Telos 4 in 2013, and Telos 5 in 2014 and the associated management fees in 2014.
Total expenses for asset management were $6.3 million for the six month period ended June 30, 2014, compared to $7.4 million for 2013. This decrease of $1.1 million was primarily attributable to lower compensation related costs in 2014.
Total operating profit for asset management was $0.6 million for the six month period ended June 30, 2014, compared to $1.6 million in 2013, a decrease of $1.0 million, or 62.5%. The primary driver of this decrease was lower management fees received in 2014, as the management fees associated with the Bickford portfolio ended with the sale in 2013.
Real Estate Operations
Total revenues for real estate operations for the six month period ended June 30, 2014 were $10.5 million, compared to $26.4 million for 2013, a decrease of $15.9 million, or 60.2%. This decrease was attributed to the sale of the Bickford property in 2013.
Total expenses for real estate operations for the six month period ended June 30, 2014 were $9.7 million, compared to $11.2 million for 2013, a decrease of $1.5 million. This decrease was primarily due to decreased interest expense on debt and decreased professional fees and decreased other expenses, offset in part by an increase in payroll expense.
Total operating profit for real estate operations for 2014 was $0.8 million, compared to $15.1 million in 2013, a decrease of $14.3 million. The primary driver of this decrease was the aforementioned sale of the Bickford property in 2013, offset in part by lower expenses in 2014.
Economic Net Income and Economic Book Value
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. ENI as used by Tiptree may
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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.
Economic Net Income Components
The following table details the individual revenue and expense components of the non-GAAP measure ENI for the periods indicated (in thousands):

| Three months ended June 30, |  | Six months ended June 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
Revenues: |  |  |  |  |  |  |
Interest income | $ | 1,731 |  |  | $ | 1,575 |  |  | $ | 4,140 |  |  |  | $ | 1,792 |
Dividend/distribution income | 4,031 |  |  | 3,689 |  |  | 8,174 |  |  |  | 8,964 |
Realized gains (losses) | (1,055 | ) |  | (1,130 | ) |  | (752 | ) |  |  | (1,008 | )
Unrealized gains | 1,874 |  |  | 3,620 |  |  | 2,333 |  |  |  | 12,674 |
Management fee income (see table below for details) | 3,303 |  |  | 5,138 |  |  | 6,649 |  |  | 8,587 |
Total revenues | 9,884 |  |  | 12,892 |  |  | 20,544 |  |  |  | 31,009 |
Expenses: |  |  |  |  |  |  |
Compensation expense | 2,032 |  |  | 3,456 |  |  | 4,356 |  |  |  | 6,904 |
Distribution expense (convertible preferred) | — |  |  | 933 |  |  | — |  |  |  | 1,747 |
Interest expense | 2,035 |  |  | 528 |  |  | 4,000 |  |  |  | 900 |
Professional fees and other | 1,964 |  |  | 1,651 |  |  | 3,620 |  |  |  | 2,939 |
Total expense | 6,031 |  |  | 6,568 |  | — |  | 11,976 |  |  |  | 12,490 |
Economic Net Income of Operating Company | 3,853 |  |  | 6,324 |  | — |  | 8,568 |  |  |  | 18,519 |
Less: Economic Net Income attributable to TFP | 2,869 |  |  | 4,749 |  |  | 6,380 |  |  |  | 13,906 |
Economic Net Income of Tiptree before tax provision | 984 |  |  | 1,575 |  |  | 2,188 |  |  |  | 4,613 |
Less: Tax adjustment attributable to Tiptree | (324 | ) |  | (327 | ) |  | (537 | ) |  |  | (327 | )
Economic Net Income of Tiptree | $ | 1,308 |  |  | $ | 1,902 |  | — |  | $ | 2,725 |  | — |  | $ | 4,940 |

The following table presents detail regarding components of management fee income:

| Three months ended June 30, |  | Six months ended June 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
Management fees associated with CLOs | $ | 3,112 |  |  | $ | 3,330 |  |  | $ | 6,233 |  |  | $ | 6,446 |
Other non-CLO advisory fees (1) | 191 |  |  | 1,808 |  |  | 416 |  |  | 2,141 |
Total management fee income | $ | 3,303 |  |  | $ | 5,138 |  |  | $ | 6,649 |  |  | $ | 8,587 |

(1) Other non-CLO advisory fees represent the advisory/management fees earned by MCM and TREIT.
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The following table summarizes the structure of each CLO managed:

| Issuance date |  | Fee earning assets under management (1) |  | First optional call date (2) |  | Termination of reinvestment period (3) |  | Maturity date (4)
Telos 1 | 11/2006 |  | $ | 246,428 |  |  | 01/2011 |  | 01/2013 |  | 10/2021
Telos 2 | 06/2007 |  | 321,197 |  |  | 07/2011 |  | 07/2013 |  | 04/2022
Telos 3 | 02/2013 |  | 353,097 |  |  | 01/2015 |  | 01/2017 |  | 01/2024
Telos 4 | 08/2013 |  | 351,298 |  |  | 07/2015 |  | 07/2017 |  | 07/2024
Telos 5 | 05/2014 |  | 400,000 |  |  | 04/2016 |  | 04/2018 |  | 04/2025
Total CLOs |  |  | $ | 1,672,020 |  |  |  |  |  |  |

(1) Fee Earning AUM are as of the next Distribution Date after June 30, 2014.

(2) | CLOs are generally callable by equity holders (or the subordinated note holders of the CLO) once per quarter beginning after termination of a Non-Call Period and subject to certain other restrictions.

(3) | Termination of reinvestment period refers to the date after which we can no longer use certain principal collections to purchase additional collateral and such collections are instead used to repay the outstanding amounts of certain debt securities issued by the CLO.

(4) Represents the contractual maturity of the CLO. Generally, the actual maturity of the deal is expected to occur in advance of contractual maturity.
Reconciliation of GAAP Net Income to Economic Net Income
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, VIEs are shown as if not consolidated.
The following is a reconciliation of GAAP Net Income attributable to Tiptree to ENI for the periods ended June 30, 2014 and 2013 (in thousands):
64

|  | Three months ended June 30, |  | Six months ended June 30,
|  | 2014 |  | 2013 |  | 2014 |  | 2013
GAAP Net Income of Tiptree |  | $ | 1,071 |  |  | $ | 3,415 |  |  | $ | 2,096 |  |  | $ | 4,733 |
Plus: Tax adjustment attributable to Tiptree companies (1) |  | (1,271 | ) |  | (1,314 | ) |  | (2,106 | ) |  | (1,314 | )
Plus: Portion of NCI held by TFP |  | (561 | ) |  | 10,325 |  |  | (9 | ) |  | 14,329 |
GAAP Net (Loss)/Income of Operating Company |  | (761 | ) |  | 12,426 |  |  | (19 | ) |  | 17,748 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |
Adjustments to results from real estate operations (2) |  | 398 |  |  | (4,737 | ) |  | 1,092 |  |  | (3,402 | )
Effect of change in majority ownership of subsidiaries (3) |  | (57 | ) |  | (234 | ) |  | (67 | ) |  | (376 | )
Fair value adjustments to carrying value (4) |  | (301 | ) |  | (3,784 | ) |  | (2,842 | ) |  | 989 |
Reversal of VIEs net losses (gains) attributable to TFI (5) |  | 4,573 |  |  | 3,567 |  |  | 10,403 |  |  | 4,191 |
Reversal of TAMCO net gains for periods prior to acquisition of TAMCO (6) |  | — |  |  | 21 |  |  | — |  |  | (57 | )
TFP convertible preferred reclass of distributions to expense (7) |  | 1 |  |  | (935 | ) |  | 1 |  |  | (1,748 | )
Foreign exchange reserve (8) |  | — |  |  | — |  |  | — |  |  | 1,174 |
Economic Net Income of Operating Company |  | 3,853 |  |  | 6,324 |  |  | 8,568 |  |  | 18,519 |
Less: Economic Net Income attributable to TFP |  | 2,869 |  |  | 4,749 |  |  | 6,380 |  |  | 13,906 |
Economic Net Income of Tiptree before tax provision |  | 984 |  |  | 1,575 |  |  | 2,188 |  |  | 4,613 |
Less: Tax adjustment attributable to Tiptree (9) |  | (324 | ) |  | (327 | ) |  | (537 | ) |  | (327 | )
Economic Net Income of Tiptree |  | $ | 1,308 |  |  | $ | 1,902 |  |  | $ | 2,725 |  |  | $ | 4,940 |

(1)Tax provision adjustment for Tiptree to reflect tax benefits at certain entities which reduces the tax expense at Operating Company.

(2) | 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.

(3) | 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 and the effect of Tiptree’s increased ownership of PFG due to the accretion of preferred shares.

(4) | Adjustment is to account at fair value for the CLO subordinated notes held by Tiptree and PFG’s available-for-sale securities. Fair values are obtained from independent third party pricing sources.

65

(5)Reversal of VIEs net losses/(gains) attributable to Tiptree (see reconciliation table below in thousands):

|  | Three months ended June 30, 2014
|  | Tiptree pro rata portion of Net Income |  | Net Income (net of 1% NCI) |
Telos 1 |  | $ | (382 | ) |  | $ | (5,376 | ) |
Telos 2 |  | (6,210 | ) |  | (6,507 | ) |
Telos 3 |  | (14 | ) |  | (239 | ) |
Telos 4 |  | 367 |  |  | 516 |  |
Telos 5 |  | 1,666 |  |  | 2,363 |  |
Total |  | $ | (4,573 | ) |  | $ | (9,243 | ) |
|  | Three months ended June 30, 2013
|  | Tiptree pro rata portion of Net Income |  | Net Income (net of 1% NCI) |
Telos 1 |  | $ | (653 | ) |  | $ | (9,181 | ) |
Telos 2 |  | (2,521 | ) |  | (2,641 | ) |
Telos 3 |  | (393 | ) |  | (994 | ) |
Total |  | $ | (3,567 | ) |  | $ | (12,816 | ) |

66

|  | Six months ended June 30, 2014
|  | Tiptree pro rata portion of Net Income |  | Net Income (net of 1% NCI) |  | Tiptree’s ownership %
Telos 1 |  | $ | (648 | ) |  | $ | (9,120 | ) |  | 7.11%
Telos 2 |  | (12,212 | ) |  | (12,794 | ) |  | 95.45
Telos 3 (a) |  | (7 | ) |  | (162 | ) |  | 4.30
Telos 4 |  | 798 |  |  | 1,123 |  |  | 71.08
Telos 5 |  | 1,666 |  |  | 2,363 |  |  | 70.51%
Total |  | $ | (10,403 | ) |  | $ | (18,590 | ) |  |
|  | Six months ended June 30, 2013
|  | Tiptree pro rata portion of Net Income |  | Net Income (net of 1% NCI) |  | Tiptree’s ownership %
Telos 1 |  | $ | (750 | ) |  | $ | (10,544 | ) |  | 7.11%
Telos 2 |  | (3,806 | ) |  | (3,987 | ) |  | 95.45
Telos 3 |  | 365 |  |  | 1,520 |  |  | 24.05%
Total |  | $ | (4,191 | ) |  | $ | (13,011 | ) |  |

(a) | During 2014, Tiptree sold its ownership interest in Telos 3. This percentage reflects its ownership during the period a portion of the CLO was still owned.

(6) | 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 reversed the effect of this recasting of financial information for prior periods.

(7) | 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.

(8)Reflects the timing difference on the recognition of yen exposure GAAP versus ENI.
(9)Tax adjustment for Tiptree Financial Inc. only and not its consolidated subsidiaries.
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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.
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 June 30, 2014 and December 31, 2013 (in thousands except share data):

| June 30, 2014 |  | December 31, 2013
Economic Book Value |  |  |
GAAP TFI Total Capital | $ | 561,279 |  |  | $ | 565,856 |
Less: Non-controlling interest in TFI | 362,046 |  |  | 361,354 |
Less: Retained Earnings of consolidated TAMCO | 76,404 |  |  | 84,591 |
GAAP Net Assets to Tiptree Class A Stockholders | 122,829 |  |  | 119,911 |
Less: Net assets held directly at Tiptree | 6,455 |  |  | 4,259 |
Plus: Portion of NCI held by TFP | 339,436 |  |  | 339,283 |
GAAP Net Assets of Operating Company | 455,810 |  |  | 454,935 |
Reversal of consolidation of TAMCO (including VIEs)(1) | (154,830 | ) |  | (144,817 | )
Fair values of CLOs (2) | 74,666 |  |  | 61,145 |
Value of TAMCO (3) | 57,661 |  |  | 57,661 |
Adjustments to results from real estate operations (4) | 4,772 |  |  | 3,711 |
Total Adjustments | (17,731 | ) |  | (22,300 | )
Economic Operating Company Net Assets | $ | 438,079 |  |  | $ | 432,635 |
Units outstanding (5) | 41,587 |  |  | 41,525 |
Economic Tiptree Book Value Per Class A Share (6) | $ | 10.53 |  |  | $ | 10.42 |
Net assets held directly at Tiptree | 6,455 |  |  | 4,259 |
Economic Operating Company Net Assets (including Tiptree level net assets) | 444,534 |  |  | 436,894 |
Economic Book Value Per Share (including Tiptree level net assets) | $ | 10.69 |  |  | $ | 10.52 |

68

(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 included in the 2013 Annual Report on Form 10-K. Adjustment is reversal of consolidation of TAMCO and VIEs.

(2) | Adjustment includes the fair value of our ownership position in the VIEs, which has been reversed as described in note (1) above.

(3) | Values TAMCO at the lower of cost or market, and reflects the valuation of the purchase price based on the value of the 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 transaction expenses, non-cash equity compensation expenses, other non-cash charges, and incentive compensation adjustment for unconsolidated partnerships and joint ventures.

(5) | Assumes full redemption of Operating Company units for Class A common stock or exchange by TFP limited partners of their limited partnership units for shares of Class A common stock. Operating Company 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 Company’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 11,068 partnership units outstanding as of June 30, 2014 and December 31, 2013, respectively. The basic EBV per partnership unit was $29.46 and $29.16 as of June 30, 2014 and December 31, 2013, respectively. The basic EBV (including Tiptree level net assets) per partnership unit was $29.91 and $29.43 as of June 30, 2014 and December 31, 2013, respectively. As of August 5. 2014, Tiptree owned 36% of the limited partnership units of TFP.

(6) | As of March 31, 2014 was $10.50.

Liquidity and Capital Resources
Tiptree is a holding company and conducts all of its operations through Operating Company. Dividends and distributions from its subsidiaries to Operating Company and investments are the principal source of cash to make acquisitions, invest in existing businesses, pay employee compensation, dividends, professional fees (including advisory services, legal and accounting fees), office rent, insurance costs, and certain support services (including under the Transition Services Agreement and Administrative Services Agreement). Tiptree’s current source of liquidity is its cash, cash equivalents and investments and distributions from operating subsidiaries and principal investments, including subordinated notes of CLOs managed by Telos. At June 30, 2014, Tiptree had unrestricted cash of $122.1 million. As a result of the $50.0 million borrowed under the credit agreement with Fortress and the $44.0 million of proceeds from the sale of the Bickford Portfolio in our real estate segment during 2013, we are maintaining a relatively larger cash balance. In 2014, we intend to deploy a significant amount of our cash balance to purchase assets, sponsor CLOs, support our existing business and invest in new products. Tiptree also intends to opportunistically acquire majority control of new businesses both in its existing financial services sectors and complementary sectors. Accordingly, Tiptree’s cash needs will differ over time from Tiptree’s historical cash needs and Tiptree may seek additional sources of cash to fund acquisitions or investments. These additional sources of cash may take the form of debt or equity and may be at the parent, subsidiary or asset level.
The ability of Tiptree’s subsidiaries to generate sufficient net income and cash flows to make cash distributions to us will be subject to numerous business and other factors, including restrictions contained in our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings. For example, Telos will require additional capital in order to form future CLOs, and PFG may require additional capital to meet regulatory capital requirements.
Consolidated Comparison of Cash Flows
Summary Consolidated Statements of Cash Flows
69

(in thousands)

| Six months ended June 30,
| 2014 |  | 2013
Net cash provided by/(used in): |  |  |
Operating activities | $ | 100,550 |  |  | $ | 20,625 |
Investing activities | (277,668 | ) |  | (421,277 | )
Financing activities | 178,611 |  |  | 424,862 |
Net increase in cash and cash equivalents | $ | 1,493 |  |  | $ | 24,210 |

Operating Activities
Cash provided by operating activities for the period ended June 30, 2014 was $100.6 million, compared to $20.6 million for the comparable period in 2013, an increase of $80.0 million. Cash provided by operating activities from VIEs for the period ended June 30, 2014 was $58.4 million, a change of $60.4 million from cash used of $2.0 million for the period ended June 30, 2013. Excluding the activity attributable to the VIEs, cash provided by operating activities increased $19.5 million. The increase was largely attributable to the increase in due to brokers, dealers and trustees of $49.0 million, offset by the decline in the net realized gain on sale of properties, net of $15.5 million, and a $14.5 million decline in the increase in policy liabilities. The $49.0 million increase in due to brokers, dealers and trustees is related to the due to trustee amounts at the warehouse compared to amounts that existed at the warehouse in the prior year. The $15.5 million related to the sale of the Bickford Portfolio in the prior year. The $14.5 million decrease in policy liabilities reflects movements in policy loan balances at PFG.
Investing Activities
Cash used in investing activities for the period ended June 30, 2014 was $277.7 million, compared to cash used of $421.3 million for the comparable period in 2013, an increase of $143.6 million. Cash used in investing activities from VIEs was $341.4 million for the period ended June 30, 2014, a decrease of $32.2 million from cash used of $309.2 million for the period ended June 30, 2013. Excluding the activity attributable to the VIEs, cash provided by investing activities increased $143.6 million from cash used of $112.1 million. The increase was largely attributable to the increase in the proceeds from sales of trading securities at the warehouse of $216.5 million compared to activity in the warehouse in the prior year offset by the decline in the purchases of trading securities and loans carried at fair value of $26.5 million also within the warehouse compared to the warehouse in the prior year. The change relates to timing as the current warehouse is in a ramp up phase at the end of June 30, 2014 when compared to the warehouse at year end which was at a more mature phase in the prior year corresponding period. The Company issued Telos 5 during the quarter on May 1, 2014 and capitalized a new warehouse on May 21, 2014. Also contributing to the change was the the decline in policy loans of $14.1 million from PFG, the decline in purchases of loans of $4.3 million largely driven by activity at Care and Siena, the increase in acquisitions, net cash of $5.1 million offset by the decline in the proceeds from sale of real estate of $44.0 million relating to the Bickford sale.
Financing Activities
Cash provided by financing activities for the period ended June 30, 2014 was $178.6 million, compared to $424.9 million in cash provided for the comparable period in 2013, a decrease of $246.3 million. Cash used in financing activities for VIEs was $280.0 million for the period ended June 30, 2014 and cash provided by financing activities for VIEs was $318.3 million for the comparable period in 2013. Excluding the activity attributable to VIEs, cash used in financing activities increased $207.9 million. The increase of $207.9 million was largely due to the decline in the partial paydown of borrowings of $139.7 million and the decline in the proceeds from loans of $52.3 million. The decline in the partial paydown of borrowings related to the activity of the new warehouse which is in a ramp up phase at the end of June 30, 2014 when compared to the Telos 4 warehouse which was at a more mature phase in the prior year corresponding period. The decline in the proceeds from loans related to varying nature of proceeds of loans when comparing June 30, 2014 and June 30, 2013. In 2014, the proceeds related to the warehouse of $23.4 million, for Siena of $15.0 million and Luxury of $3.4 million. In the prior year the proceeds were from a previous warehouse of $111.7 million. Telos 4 was issued during the third quarter of 2013.
Indebtedness
70

On September 18, 2013, Operating Company entered into a Credit Agreement with Fortress and borrowed $50.0 million under the Credit Agreement. The Credit Agreement also includes an option for Operating Company to borrow additional amounts up to a maximum aggregate of $125.0 million, subject to satisfaction of certain customary conditions. The principal of, and all accrued and unpaid interest on, all loans under the Credit Agreement shall become immediately due and payable on September 18, 2018. Loans under the Credit Agreement bear interest at a variable rate per annum equal to the one-month London interbank offering rate (LIBOR), with a minimum LIBOR rate of 1.25%, + a margin of 6.50% per annum. The principal amounts of the loans are to be repaid in consecutive quarterly installments, which installments may be adjusted based on the Net Leverage Ratio (as defined in the Credit Agreement) at the end of each fiscal quarter. The obligations of Operating Company under the Credit Agreement are secured by liens on substantially all of the assets of Operating Company. As of June 30, 2014, $48.5 million was outstanding on this obligation. The weighted average interest rate for 2014 was 7.75%. See Note 11 to the consolidated financial statements for a discussion of other debt instruments of our operating segments.
Contractual Obligations
The table below summarizes the Company’s contractual obligations for the periods indicated (in thousands). Not all of the Company’s commitments and contingencies are reflected on its consolidated balance sheets:

| June 30, 2014 |  | December 31, 2013
Mortgage notes payable and related interest (1) | $ | 106,301 |  |  | $ | 107,705 |
Note payable (2) | 88,539 |  |  | 91,015 |
Notes payable CLOs (3) | 1,633,074 |  |  | 1,341,701 |
Warehouse borrowing (4) | 24,045 |  |  | — |
Operating lease obligations (5) | 13,774 |  |  | 6,437 |
Credit facility/ line of credit (6) | 68,662 |  |  | 54,871 |
Standby letters of credit (7) | 322 |  |  | — |
Total | $ | 1,934,717 |  |  | $ | 1,601,729 |

(1) | Mortgage notes payable include mortgage notes entered into by the Company in connection with its acquisition of several properties (See Note 11—Debt).

(2) | Notes payable relates to PFG’s acquisition of the administrative services rights from The Hartford, TFP payment for Series A preferred stock and common shares of PFG and Luxury promissory notes (See Note 11—Debt).

(3) | CLO notes payable principal is payable at stated maturity, 2021 for Telos 1, 2022 for Telos 2, 2024 for Telos 3, 2024 for Telos 4 and 2025 for Telos 5 (See Note 4—CLOs and Consolidated Variable Interest Entities).

(4) | The Company through its subsidiary Luxury has warehouse borrowings with several lenders (See Note 11—Debt).

(5) | Minimum rental obligations for Care, Siena, Luxury and PFG office leases. For the six month periods ended June 30, 2014 and 2013, rent expense for the Company’s office leases were $1,192 and $786, respectively.

(6) | On September 18, 2013, Operating Company entered into a Credit Agreement with Fortress and borrowed $50,000 under the Credit Agreement. The Credit Agreement also includes an option for Operating Company to borrow additional amounts up to a maximum aggregate of $125,000, subject to satisfaction of certain customary conditions. On July 25, 2013, TFI’s subsidiary Siena closed on a line of credit with Wells Fargo Bank. This revolving line is for $65,000 with an interest rate of LIBOR + 250 basis points and a maturity date of January 25, 2017. As of June 30, 2014, there was $20,162 outstanding on this line (See Note 11—Debt).

(7) | Tiptree’s subsidiary Siena issues standby letters of credit to customers which generally guarantee the borrower’s performance.

Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. There have been no material changes to the critical accounting policies and estimates as discussed in our 2013 Annual Report on Form 10-K. Refer to Note 2 (Acquisitions) for information regarding accounting principles associated with Luxury.
71

Recently Adopted Accounting Standards
In fiscal 2014, the Company has adopted the following accounting standards:
In June 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-08, Financial Services-Investment Companies (ASC Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. This ASU introduces a new approach for assessing whether an entity is an investment company. To determine whether an entity is an investment company for accounting purposes, Tiptree will now be required to evaluate the fundamental and typical characteristics of the entity including its purpose and design. The amendments in the ASU were effective for Tiptree in the first quarter of 2014. The Company completed its analysis of ASU No. 2013-08 and the adoption of this standard does not have a material effect on the Company’s consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (ASC Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force) (ASU 2013-11), which provides that a liability related to an unrecognized tax benefit would be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations in which a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with deferred tax assets. The amendments are applied prospectively to all unrecognized tax benefits that exist at the effective date. ASU 2013-11 was effective for the Company beginning in the first quarter of fiscal 2014. The Company completed its analysis of ASU 2013-11 and the adoption of this standard does not have a material effect on the Company’s consolidated financial statements.
Off-Balance Sheet Arrangements
Luxury enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes, as well as commitments to sell real estate loans to various investors. Substantially all of Luxury’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. In addition, Siena issues standby letters of credit to customers which generally guarantee the borrower’s performance. Other than these commitments to originate and sell loans and letters of credit, the Company did not guarantee any obligations of unconsolidated entities, or express intent to provide additional funding to any such entities.
72

Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information contained in this item.
Item 4. Controls and Procedures
Tiptree completed the Contribution Transactions on July 1, 2013, and as a result is disclosing a change to internal control over financial reporting related thereto. The businesses contributed by TFP in the Contribution Transactions are excluded from management’s annual certifications pursuant to Section 906 and Section 302 of the Sarbanes-Oxley Act of 2002. Management is in the process of evaluating internal control over financial reporting for the businesses contributed by TFP and expects that the assessment will be completed with Tiptree’s December 31, 2014 Annual Report on Form 10-K.
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of June 30, 2014. Based upon that evaluation the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2014, the Company’s disclosure controls and procedures were effective in causing material information relating to the Company to be recorded, processed, summarized and reported by management in a timely basis and ensuring the quality and timeliness of the Company’s public disclosures with SEC disclosure obligations.
PART II. Other Information
Item 1. Legal Proceedings
Tiptree and its subsidiaries are parties to legal proceedings in the ordinary course of business. Although Tiptree’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, Tiptree does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on Tiptree’s financial position or results of operations.
Item 1A. Risk Factors
For information regarding factors that could affect our Company, results of operations and financial condition, see the risk factors discussed under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. There has been no material change in those risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits, Financial Statement Schedules

The following documents are filed as a part of this Form 10-Q: |
Financial Statements (Unaudited): |
Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 | 2
Consolidated Statements of Operations for the three and six month periods ended June 30, 2014 and 2013 | 4
Consolidated Statements of Other Comprehensive Income for the three and six months ended June 30, 2014 and 2013 | 7
Consolidated Statement of Changes in Stockholders’ Equity for the period ended June 30, 2014 | 8
Consolidated Statements of Cash Flows for the six month periods ended June 30, 2014 and 2013 | 9
Notes to Consolidated Financial Statements | 11
Exhibits: |
The Exhibits listed in the Index of Exhibits, which appears immediately following the signature page and is incorporated herein by reference, as filed as part of this Form 10-Q. |

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

|  | Tiptree Financial Inc.
Date: August 12, 2014 |  | By:/s/ Geoffrey N. Kauffman
|  | Geoffrey N. Kauffman
|  | Chief Executive Officer
Date: August 12, 2014 |  | By:/s/ Julia Wyatt
|  | Julia Wyatt
|  | Chief Financial Officer

74

E
EXHIBIT INDEX
Exhibit No. Description

31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS XBRL Instance Document*
101.SCH XBRL Taxonomy Extension Schema Document*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB XBRL Taxonomy Extension Label Linkbase Document*
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*
* Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets for June 30, 2014 and December 31, 2013, (ii) the Consolidated Statements of Operations for the three and six month periods ended June 30, 2014 and 2013, (iii) the Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2014 and 2013, (iv) the Consolidated Statement of Changes in Stockholders’ Equity for the period ended June 30, 2014, (v) the Consolidated Statements of Cash Flows for the periods ended June 30, 2014 and 2013 and (vi) the Notes to the Consolidated Financial Statements.
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