Investments

9 Months Ended

Sep. 30, 2020

Investments

Investments

5. Investments

Available-For-Sale Investments

Investments classified as available-for-sale securities were as follows:

	September 30, 2020
			Gross Unrealized		Gross Unrealized
	Amortized Cost		Gains		(Losses)		Fair Value
Investments - debt securities:
U.S. Treasury Bills	$	49,973	$	4	$	(2)	$	49,975
Corporate debt securities		60		—		—		60
		50,033		4		(2)		50,035
Restricted investments:
Short-term bond		1,170		10		—		1,180
		1,170		10		—		1,180
	$	51,203	$	14	$	(2)	$	51,215

	December 31, 2019
			Gross Unrealized		Gross Unrealized
	Amortized Cost		Gains		(Losses)		Fair Value
Investments - debt securities:
Corporate debt securities	$	178	$	—	$	(125)	$	53
		178		—		(125)		53
Restricted investments:
Short-term bond		2,239		11		—		2,250
Money market fund		114		—		—		114
		2,353		11		—		2,364
	$	2,531	$	11	$	(125)	$	2,417

During the three months ended September 30, 2020 there were no realized gains or losses from the sale of available-for-sale securities. During the nine months ended September 30, 2020 net realized gains from the sale of available-for-sale securities were less than $0.1 million, proceeds from the sale of available-for-sale securities were $1.2 million, maturities of available-for-sale investments were $9.0 million and purchases of available-for-sale securities were $58.9 million.

During the three and nine months ended September 30, 2019 realized gains from the sale of available-for-sale securities were $0.1 million. During the nine months ended September 30, 2019 proceeds from the sale of available-for-sale securities were $4.0 million and purchases of available-for sale securities were less than $0.1 million.

The following table provides the available-for-sale investments with an unrealized loss position and their related fair values:

	September 30, 2020
	Less Than 12 Months				12 Months or Greater
			Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses
Investments - debt securities:
U.S. Treasury Bills	$	25,990	$	2	$	—	$	—

	December 31, 2019
	Less Than 12 Months				12 Months or Greater
			Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses
Investments - debt securities:
Corporate debt securities	$	—	$	—	$	53	$	125

As of September 30, 2020, the Company had unrealized losses of less than $0.1 million related to U.S. Treasury Bills. The Company had unrealized losses of $0.1 million as of December 31, 2019 related to corporate debt securities. As of September 30, 2020, the Company determined unrealized losses related to U.S. Treasury Bills were not due to credit impairment and did not record an allowance for credit losses related to available-for-sale debt securities. As of September 30, 2020 and December 31, 2019, the Company did not intend to sell the investments with a material unrealized loss and it is more likely than not that the Company will not be required to sell any of these securities prior to their anticipated recovery.

The amortized cost and estimated fair value of investments - debt securities and restricted investments classified as available-for-sale, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities since certain borrowers have the right to call or prepay obligations.

	September 30, 2020
	Amortized Cost		Fair Value
Due in one year or less	$	50,033	$	50,035
Restricted investments		1,170		1,180
	$	51,203	$	51,215

Investments - Equity Securities

As of September 30, 2020 and December 31, 2019 investments - equity securities included $2.7 million and $9.7 million, respectively, of preferred stock investments recorded at fair value. During the three months ended September 30, 2020 the Company had an unrealized gain on investments – equity securities of $0.3 million, compared to an unrealized loss of $1.4 million during the three months ended September 30, 2019. During the nine months ended September 30, 2020 and 2019 the Company had an unrealized loss on investments – equity securities of $4.6 million and $1.3 million, respectively. These amounts were included within investment income, net on the condensed consolidated statements of income.

Investment Management Agreement

Mr. Bruce R. Berkowitz is the Chairman of the Company’s Board of Directors (the “Board”). He is the Manager of, and controls entities that own and control, Fairholme Holdings, LLC (“Fairholme”), which wholly owns Fairholme Capital Management, L.L.C. (“FCM”, an investment advisor registered with the SEC). Mr. Berkowitz is the Chief

Investment Officer of FCM, which has provided investment advisory services to the Company since April 2013. FCM does not receive any compensation for services as the Company’s investment advisor. As of September 30, 2020, clients of FCM, including Mr. Berkowitz, beneficially owned approximately 44.91% of the Company’s common stock. FCM and its client, The Fairholme Fund, a series of the Fairholme Funds, Inc., may be deemed affiliates of the Company.

Pursuant to the terms of an Investment Management Agreement, as amended, with the Company (the “Investment Management Agreement”), FCM agreed to supervise and direct the investments of investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Company. The investment guidelines are set forth in the Investment Management Agreement and require that, as of the date of any investment: (i) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government), (ii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10% of the investment account, but not 15%, requires approval by a second member of Company’s Board, (iii) 25% of the investment account must be held in cash or cash equivalents, (iv) the investment account is permitted to be invested in common equity securities; however, common stock investments shall be limited to exchange-traded common equities, shall not exceed 5% ownership of a single issuer and, cumulatively, the common stock held in the Company’s investment portfolio shall not exceed $100.0 million market value, and (v) the aggregate market value of investments in common stock, preferred stock or other equity investments cannot exceed 25% of the market value of the Company’s investment portfolio at the time of purchase.