DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2015

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

7. DISCONTINUED OPERATIONS

We have reflected the lending segment, which was acquired on the Acquisition Date as disclosed in Note 2, as held for sale at December 31, 2015 and 2014, based on a plan approved by the Board of Directors to sell the lending segment that, when completed, will result in the deconsolidation of the lending segment.  During July 2015, to maximize value, we modified our strategy from a strategy of selling the lending segment as a whole to a strategy of soliciting buyers for components of the business.  This change in the sale methodology resulted in the need to extend the period to complete the sale of the lending segment beyond one year. In connection with our plan, we have expensed transaction costs of $675,000 and $473,000 as incurred during the years ended December 31, 2015 and 2014, respectively.

In December 2015, pursuant to the modified plan, we sold substantially all of our commercial mortgage loansto an unrelated third party. We are continuing our efforts and are actively soliciting the sale of the remainder of the lending segment. We recognized a gain of $5,151,000 relating to the sale of our commercial mortgage loans, which is included in discontinued operations. Our gain was computed as follows:

	(in thousands)
Proceeds received	$	84,928
Less: Carrying value of commercial mortgage loans (1)		(77,121)
Gain on sale before transaction costs		7,807
Transaction costs (2)		(2,656)
Gain on disposition of assets held for sale	$	5,151

(1) Includes unamortized acquisition discounts of $15,951,000 as of the date of sale.

(2) Transaction costs include $1,638,000 paid to CIM SBA Staffing, LLC, an affiliate of CIM Group, for reimbursement of costs in connection with the sale of substantially all of our commercial mortgage loansto an unrelated third party.

The following is a reconciliation of the carrying amounts of assets and liabilities that are classified as held for sale on the consolidated balance sheet as of December 31, 2015 and 2014:

	December 31,
	2015		2014
	(in thousands)
Assets held for sale
Loans receivable, net	$	103,440	$	189,052
Cash and cash equivalents		15,936		9,937
Restricted cash		819		916
Accounts receivable and interest receivable, net		691		738
Other intangible assets		2,957		2,957
Other assets		5,149		5,199
Total assets held for sale	$	128,992	$	208,799
Liabilities associated with assets held for sale
Debt	$	47,121	$	41,901
Accounts payable and accrued expenses		2,302		2,709
Other liabilities		3,317		5,181
Total liabilities associated with assets held for sale	$	52,740	$	49,791

Loans receivable,  net consist of the following:

		December 31,
		2015		2014
	(in thousands)
Commercial mortgage loans	$	3,511	$	108,864
SBA 7(a) loans, subject to secured borrowings		36,574		41,328
SBA 7(a) loans		43,096		38,707
Commercial real estate loan, subject to secured borrowing		20,408		—
Loans receivable		103,589		188,899
Deferred capitalized costs, net		406		292
Loan loss reserves		(555)		(139)
Net loans receivable	$	103,440	$	189,052

Commercial Mortgage Loans —Represents loans to small businesses collateralized by first liens on the real estate of the related business.

SBA 7(a) Loans, Subject to Secured Borrowings —Represents the government guaranteed portion of loans which were sold with the proceeds received from the sale reflected as “secured borrowings—government guaranteed loans.”  There is no credit risk associated with these loans since the SBA has guaranteed payment of the principal.

SBA 7(a) Loans —Represents the non-government guaranteed retained portion of loans originated under the SBA 7(a) Program and the government guaranteed portion of loans that have not yet been fully funded or sold. 

Commercial Real Estate Loan, Subject to Secured Borrowing—Represents a mezzanine loan secured by an indirect ownership interest in an entity that either directly or indirectly owns parcels of commercial real estate.  The loan has a variable interest rate.

Debt consists of the following:

	December 31,
	2015		2014
	(in thousands)
Secured Borrowings—Government Guaranteed Loans:
Secured borrowing principal on SBA 7(a) loans sold for a premium and excess spread—variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 3.90% and 3.92% at December 31, 2015 and 2014, respectively	$	29,481	$	33,654
Secured borrowing principal on loans sold for excess spread—variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 1.58%		4,947		5,085
		34,428		38,739
Unamortized premiums on loans sold for a premium and excess spread		2,693		3,162
Total Secured Borrowings—Government Guaranteed Loans		37,121		41,901
Secured Borrowing—Commercial Real Estate Loan:
Secured borrowing based on 49% of the principal on a commercial real estate loan with a variable rate, reset monthly, based on 30-day LIBOR and a current coupon rate of 9.77% at December 31, 2015. The secured borrowing matures on March 1, 2017.		10,000		—
Total Secured Borrowings	$	47,121	$	41,901

Secured Borrowings—Represents sold loans which are treated as secured borrowings since the loan sales did not meet the derecognition criteria provided for in ASC 860-30, Secured Borrowing and Collateral. To the extent secured borrowings are for government guaranteed loans, they may include cash premiums which are included in secured borrowings and amortized as a reduction to interest expense over the life of the loan using the effective interest method and fully amortized when the loan is repaid in full.

Future principal payments on our lending segment debt (face value) at December 31, 2015 are as follows:

	Secured
Years Ending	Borrowings
December 31,	Principal(1)
	(in thousands)
2016	$	1,172
2017		11,213
2018		1,253
2019		1,297
2020		1,343
Thereafter		28,150
	$	44,428

(1) Principal payments are generally dependent upon cash flows received from the underlying loans.  Our estimate of their repayment is based on scheduled principal payments on the underlying loans. Our estimate will differ from actual amounts to the extent we experience prepayments and/or loan liquidations or charge‑offs.  No payment is due unless payments are received from the borrowers on the underlying loans.

The following is the detail of income from operations of assets held for sale classified as discontinued operations on the consolidated statement of operations:

			From the Acquisition
	Year Ended		Date through
	December 31, 2015		December 31, 2014
	(in thousands)
Revenue - Interest and other income	$	23,065	$	18,910
Expenses:
Interest expense		977		1,177
Fees to related party (1)		4,627		—
General and administrative (1)		1,527		4,472
Provision for income taxes		806		623
Total Expenses		7,937		6,272
Income from operations of assets held for sale		15,128		12,638
Gain on disposition of assets held for sale		5,151		—
Net income from discontinued operations	$	20,279	$	12,638

(1) Salaries and related benefits of $3,530,000 were included in general and administrative expense for the period from the Acquisition Date through December 31, 2014 while, as a result of the transfer of substantially all our lending segment employees to an affiliate (see Note 14), such expenses were included in fees to related party for the year ended December 31, 2015.