UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended |
☐ | 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: 001-36802
JMP Group LLC
(Exact name of registrant as specified in its charter)
Delaware |
| 47-1632931 |
(State or
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| (I.R.S. Employer Identification No.) |
600 Montgomery Street, Suite 1100, San Francisco, California 94111
(Address of principal executive offices)offices and Zip code)
(415) 835-8900
(Registrant’s telephone number: (415) 835-8900number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading symbol | Name of Each Exchange on Which Registered | ||
Shares representing limited liability company interests in JMP Group LLC | JMP | New York Stock Exchange | ||
JMP Group LLC 6.875% Senior Notes due 2029 | ||||
JMP Group Inc. 7.25% Senior Notes due 2027 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
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| Smaller reporting company |
| ☒ | |
Emerging growth company |
| ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
JMP Group LLC shares representing limited liability company interests outstanding as of NovembeMay 5, 2020r: 19,577,409 12, 2019: 19,346,376..
Table of Contents
TABLE OF CONTENTS
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| Page |
PART I. | FINANCIAL INFORMATION | 4 |
Item 1. | Financial Statements - JMP Group LLC | 4 |
Consolidated Statements of Financial Condition – | 4 | |
Consolidated Statements of Operations - For the Three |
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Consolidated Statements of Comprehensive Income (Loss) - For the Three | ||
Consolidated Statements of Changes in Shareholders' Equity - For the Three |
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Consolidated Statements of Cash Flows - For the Three |
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Notes to Consolidated Financial Statements (Unaudited) |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. | Controls and Procedures |
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PART II. | OTHER INFORMATION |
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Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. | Defaults Upon Senior Securities |
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Item 4. | Mine Safety Disclosures |
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Item 5. | Other Information |
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Item 6. | Exhibits |
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EXHIBIT INDEX |
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SIGNATURES | 52 |
AVAILABLE INFORMATION
JMP Group LLC is required to file current, annual and quarterly reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Securities and Exchange Commission (the "SEC"“SEC”). The SEC maintains an internet website at http://www.sec.gov, from which interested persons can electronically access JMP Group LLC’s SEC filings.
JMP Group LLC provides its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Forms 3, 4 and 5 filed by or on behalf of directors, executive officers and certain large shareholders, and any amendments to those documents filed or furnished pursuant to the Exchange Act free of charge on the Investor Relations section of its website located at http://www.jmpg.com. These filings will become available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. From time to time JMP Group LLC may use its website as a channel of distribution of material company information.
JMP Group LLC also makes available, in the Investor Relations section of its website and will provide print copies to shareholders upon request, (i) its corporate governance guidelines, (ii) its code of business conduct and ethics, and (iii) the charters of the audit, compensation, and corporate governance and nominating committees of its board of directors. These documents, as well as the information on the website, are not intended to be part of this quarterly report on Form 10-Q (the “Quarterly Report”) and inclusions of the internet address in this Quarterly Report. JMP Group LLC also uses the Investor Relations section of its website as a means of complying with its disclosure obligations under Regulation FD. Accordingly, you should monitor the Investor Relations section of JMP Group LLC's website in addition to following JMP Group LLC’s SEC filings, press releases and investor presentation materials.
PART I. FINANCIAL INFORMATION
ITEM 1. | Financial Statements |
JMP Group LLC
Consolidated Statements of Financial Condition
(Unaudited)
(Dollars in thousands, except per share data)
September 30, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 48,020 | $ | 70,927 | ||||
Restricted cash | 1,221 | 61,881 | ||||||
Investment banking fees receivable | 7,392 | 6,647 | ||||||
Marketable securities owned (includes $70,739 and $18,874 at fair value at September 30, 2019 and December 31, 2018, respectively) | 83,555 | 18,874 | ||||||
Other investments (includes $14,392 and $9,913 at fair value at September 30, 2019 and December 31, 2018, respectively) | 34,841 | 16,124 | ||||||
Loans held for investment, net of allowance for loan losses | 4,777 | 29,608 | ||||||
Loans collateralizing asset-backed securities issued, net of allowance for loan losses | - | 1,161,463 | ||||||
Interest receivable | 372 | 3,004 | ||||||
Fixed assets, net | 2,649 | 2,351 | ||||||
Operating lease right-of-use asset | 20,293 | - | ||||||
Other assets | 30,171 | 20,363 | ||||||
Total assets | $ | 233,291 | $ | 1,391,242 | ||||
Liabilities and Equity | ||||||||
Liabilities: | ||||||||
Marketable securities sold, but not yet purchased, at fair value | $ | 2,837 | $ | 4,626 | ||||
Accrued compensation | 17,867 | 41,609 | ||||||
Asset-backed securities issued (net of debt issuance costs of $8,979 at December 31, 2018) | - | 1,112,342 | ||||||
Interest payable | 549 | 11,210 | ||||||
Note payable | 15,812 | 829 | ||||||
CLO warehouse credit facilities | - | 22,500 | ||||||
Bond payable (net of debt issuance costs of $3,521 and $2,428 at September 30, 2019 and December 31, 2018, respectively) | 82,427 | 83,497 | ||||||
Operating lease liability | 26,145 | - | ||||||
Other liabilities | 16,141 | 17,423 | ||||||
Total liabilities | 161,778 | 1,294,036 | ||||||
Commitments and Contingencies (Note 17) | ||||||||
JMP Group LLC Shareholders' Equity | ||||||||
Common shares, $0.001 par value, 100,000,000 shares authorized; 22,797,092 and 22,780,052 shares issued at September 30, 2019 and December 31, 2018, respectively; 19,324,427 and 21,319,720 shares outstanding at September 30, 2019 and December 31, 2018, respectively | 23 | 23 | ||||||
Additional paid-in capital | 134,858 | 134,129 | ||||||
Treasury shares at cost, 3,472,665 and 1,460,332 shares at September 30, 2019 and December 31, 2018, respectively | (15,869 | ) | (7,932 | ) | ||||
Accumulated other comprehensive loss | (1,860 | ) | - | |||||
Accumulated deficit | (45,303 | ) | (42,513 | ) | ||||
Total JMP Group LLC shareholders' equity | 71,849 | 83,707 | ||||||
Nonredeemable Non-controlling Interest | (336 | ) | 13,499 | |||||
Total equity | 71,513 | 97,206 | ||||||
Total liabilities and equity | $ | 233,291 | $ | 1,391,242 |
See accompanying notes to consolidated financial statements.
JMP Group LLC
Consolidated Statements of Financial Condition - (Continued)
(Unaudited)
(Dollars in thousands, exceptand per share data)
Assets and liabilities of consolidated variable interest entities (“VIEs”) included in total assets and total liabilities above:
September 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 (1) | |||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 38,435 | $ | 49,630 | ||||||||||||
Restricted cash | 1,287 | 1,287 | ||||||||||||||
Investment banking fees receivable | 5,757 | 9,066 | ||||||||||||||
Marketable securities owned at fair value | 56,024 | 73,101 | ||||||||||||||
Other investments (includes $13,468 and $14,206 measured at fair value at March 31, 2020 and December 31, 2019, respectively) | 21,987 | 35,309 | ||||||||||||||
Loans held for investment, net of allowance for loan losses | 1,181 | 1,210 | ||||||||||||||
Interest receivable | 392 | 502 | ||||||||||||||
Fixed assets, net | 3,984 | 4,267 | ||||||||||||||
Operating lease right-of-use asset | 18,802 | 19,632 | ||||||||||||||
Other assets | 41,195 | 36,253 | ||||||||||||||
Total assets | $ | 189,044 | $ | 230,257 | ||||||||||||
Restricted cash | $ | - | $ | 50,456 | ||||||||||||
Loans collateralizing asset-backed securities issued, net of allowance for loan losses | - | 1,161,463 | ||||||||||||||
Interest receivable | - | 2,711 | ||||||||||||||
Other investments | - | 821 | ||||||||||||||
Other assets | - | 67 | ||||||||||||||
Total assets of consolidated VIEs | $ | - | $ | 1,215,518 | ||||||||||||
Liabilities and Equity | ||||||||||||||||
Liabilities: | ||||||||||||||||
Marketable securities sold, but not yet purchased, at fair value | $ | 1,959 | $ | 3,855 | ||||||||||||
Accrued compensation | 5,592 | 30,253 | ||||||||||||||
Interest payable | 711 | 520 | ||||||||||||||
Note payable | 6,812 | 6,812 | ||||||||||||||
Bond payable (net of debt issuance costs of $3,229 and $3,416 at March 31, 2020 and December 31, 2019, respectively) | 80,636 | 82,584 | ||||||||||||||
Operating lease liability | 24,359 | 25,394 | ||||||||||||||
Other liabilities | 17,763 | 19,478 | ||||||||||||||
Total liabilities | 137,832 | 168,896 | ||||||||||||||
Asset-backed securities issued, net of debt issuance costs | - | 1,122,187 | (1) | |||||||||||||
Interest payable | - | 10,132 | ||||||||||||||
Other liabilities | - | 1,877 | ||||||||||||||
Total liabilities of consolidated VIEs | $ | - | $ | 1,134,196 | ||||||||||||
Commitments and Contingencies (Note 16) | ||||||||||||||||
JMP Group LLC Shareholders' Equity | ||||||||||||||||
Common shares, $0.001 par value, 100,000,000 shares authorized at March 31, 2020 and December 31, 2019; 22,797,092 shares issued at March 31, 2020 and December 31, 2019; 19,547,006 and 19,509,349 shares outstanding at March 31, 2020 and December 31, 2019, respectively | 23 | 23 | ||||||||||||||
Additional paid-in capital | 134,128 | 133,894 | ||||||||||||||
Treasury shares at cost, 3,250,086 and 3,287,743 shares at March 31, 2020 and December 31, 2019, respectively | (14,698 | ) | (14,872 | ) | ||||||||||||
Accumulated other comprehensive loss | (3,488 | ) | (4,769 | ) | ||||||||||||
Accumulated deficit | (64,336 | ) | (52,588 | ) | ||||||||||||
Total JMP Group LLC shareholders' equity | 51,629 | 61,688 | ||||||||||||||
Non-controlling interest | (417 | ) | (327 | ) | ||||||||||||
Total equity | 51,212 | 61,361 | ||||||||||||||
Total liabilities and equity | $ | 189,044 | $ | 230,257 |
(1) Includes $9.8 million of debt held by the Company which is eliminated on the Consolidated Statements of Financial Condition.
(1) The balance sheet as of December 31, 2019 is derived from the audited financial statements as of that date. See accompanying notes to consolidated financial statements. JMP Group LLC Consolidated Statements of Operations (Unaudited) (In thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31, 2019 2018 2019 2018 2020 2019 Revenues Investment banking Brokerage Asset management fees Principal transactions Loss on sale, payoff and mark-to-market of loans Net dividend income Other income Non-interest revenues Interest income Interest expense Net interest income Loss on repurchase, reissuance or early retirement of debt Provision for loan losses Total net revenues after provision for loan losses Non-interest expenses Compensation and benefits Administration Brokerage, clearing and exchange fees Travel and business development Managed deal expenses Communications and technology Occupancy Professional fees Depreciation Other Total non-interest expenses Net income (loss) before income tax expense Income tax expense (benefit) Net income (loss) Less: Net income (loss) attributable to nonredeemable non-controlling interest Net income (loss) attributable to JMP Group LLC Net income (loss) attributable to JMP Group LLC per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted See accompanying notes to consolidated financial statements. JMP Group LLC Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (In Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31, 2019 2018 2019 2018 2020 2019 Net income (loss) Other comprehensive gain (loss): Unrealized gain (loss) on available-for-sale securities, net of tax Comprehensive income (loss) attributable to JMP Group LLC Other comprehensive income (loss): Comprehensive income (loss) Less: Comprehensive income (loss) attributable to non-controlling interest Comprehensive income (loss) attributable to JMP Group LLC See accompanying notes to consolidated financial statements. JMP Group LLC Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (In thousands) JMP Group LLC's Equity Common Shares Treasury Accumulated Shares Amount Shares Capital Deficit Loss Interest Total Equity Balance, December 31, 2018 Net loss Additional paid-in capital - share-based compensation Distributions and distribution equivalents declared on common shares and restricted share units Purchases of shares of common shares for treasury Distributions to non-controlling interest holders Derecognition of non-controlling interest due to deconsolidation Unrealized loss on available-for-sale securities, net of tax JMP Group LLC's Equity Common Shares Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Non-controlling Total Shares Amount Shares Capital Deficit Income (Loss) Interest Equity Balance, December 31, 2019 Net loss Additional paid-in capital - share-based compensation Purchases of shares of common shares for treasury Reissuance of shares of common shares from treasury Other comprehensive income Balance, March 31, 2020 JMP Group LLC's Equity JMP Group LLC's Equity Common Shares Treasury Accumulated Common Shares Treasury Additional Paid-In Accumulated Accumulated Other Comprehensive Non-controlling Total Shares Amount Shares Capital Deficit Loss Interest Total Equity Shares Amount Shares Capital Deficit Income (Loss) Interest Equity Balance, December 31, 2017 Balance, December 31, 2018 Net income (loss) Additional paid-in capital - share-based compensation Distributions and distribution equivalents declared on common shares and restricted share units Purchases of shares of common shares for treasury Reissuance of shares of common shares from treasury Purchase of subsidiary shares from non-controlling interest holders Distributions to non-controlling interest holders Capital contributions from non-controlling interest holders Balance, September 30, 2018 Derecognition of non-controlling interest due to deconsolidation Other comprehensive loss Balance, March 31, 2019 See accompanying notes to consolidated financial statements. JMP Group LLC Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, Three Months Ended March 31, 2019 2018 2020 2019 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Provision for loan losses Loss on sale and payoff of loans and mark-to-market of loans Loss on repurchase, reissuance or early retirement of debt Adjustments to reconcile net loss (income) to net cash used in operating activities: Gain on repurchase, reissuance or early retirement of debt Change in other investments: (Income) loss from investments in equity method investees Unrealized gain on other equity investments Unrealized (gain) loss on other investments Gain on other investments Depreciation and amortization Share-based compensation expense Gain on deconsolidation Distributions of investment income from equity method investments Other, net Net change in operating assets and liabilities: Increase in interest receivable Increase in receivables Decrease (increase) in interest receivable Decrease in receivables Decrease in marketable securities Decrease (increase) in other assets Increase in other assets Decrease in marketable securities sold, but not yet purchased (Decrease) increase in interest payable Increase (decrease) in interest payable Decrease in accrued compensation Increase in other liabilities Net cash provided by (used in) operating activities (Decrease) increase in other liabilities Cash flows from investing activities: Purchases of fixed assets Purchases of other investments Sales or distributions from other investments Funding of loans collateralizing asset-backed securities issued Funding of loans held for investment Sale, payoff and principal receipts of loans collateralizing asset-backed securities issued Sale, payoff and principal receipts on loans held for investment Net decrease in cash and restricted cash due to deconsolidation of subsidiaries Net cash used in investing activities Net cash provided by (used in) investing activities See accompanying notes to consolidated financial statements. JMP Group LLC Consolidated Statements of Cash Flows - (Continued) (Unaudited) (In thousands) Nine Months Ended September 30, Three Months Ended March 31, 2019 2018 2020 2019 Cash flows from financing activities: Proceeds from issuance of repurchase agreement Repayment of repurchase agreement Proceeds from drawdowns on line of credit Proceeds from drawdowns on CLO warehouse facilities Proceeds from sale of note payable to affiliate Payment of debt issuance costs Repayment of line of credit Repayment of asset-backed securities issued Repayment on bonds payable Proceeds of issuance from asset-backed securities issued Reissuance of asset-back securities Repurchase of bonds payable Distributions and distribution equivalents paid on common shares and RSUs Capital contributions of nonredeemable non-controlling interest holders Purchase of common shares for treasury Distributions to non-controlling interest shareholders Employee taxes paid on shares withheld for tax-withholding purposes Net cash provided by financing activities Net cash (used in) provided by financing activities Net decrease in cash, cash equivalents, and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period Supplemental disclosures of cash flow information: Cash paid during the period for interest Cash paid during the period for taxes Non-cash investing and financing activities: Reissuance of common shares from treasury and issuance of common shares related to vesting of restricted share units Reissuance of common shares from treasury related to vesting of restricted share units Distributions declared but not yet paid Acquisition of equity securities in restructuring of loans Initial recognition of operating lease right-of-use assets Initial recognition of operating lease right-of-use liabilities Carrying value of noncash assets derecognized on deconsolidation of subsidiaries Carrying value of noncash liabilities derecognized on deconsolidation of subsidiaries Carrying value of non-controlling interest derecognized on deconsolidation of subsidiaries Fair value of marketable securities recognized on deconsolidation of subsidiaries Fair value of other investments recognized on deconsolidation of subsidiaries See accompanying notes to consolidated financial statements. JMP Group LLC Notes to Consolidated Financial Statements (Unaudited) 1. Organization and Description of Business JMP Group LLC, together with its subsidiaries (collectively, the “Company”), is a diversified Recent Transactions On January 17, 2019, the non-call period of JMP Credit Advisors CLO III(R) Ltd. (“CLO III”) expired, which resulted in a change in the entity with the control over the most significant activities of the variable interest entity (“VIE”). During the non-call period the Company concluded that it was the primary beneficiary of CLO III through its combination of control over the manager and its economic interest in CLO III. When the non-call period expired, holders of a majority of the subordinated notes could refinance or liquidate the CLO and the Company determined this to be the most significant activity. The expiration of the non-call period resulted in the Company losing control over the most significant activity of CLO III as it cannot unilaterally direct this activity. The Company deconsolidated CLO III as of January 17, 2019. The Company continues to hold approximately 47% of the outstanding subordinated notes of CLO III and accounts for its ownership of the CLO III subordinated notes as an investment in a debt security. The Company On March 19, 2019, the Company sold a 50.1% equity interest in JMPCA to Medalist Partners LP (“Medalist”), an alternative asset management firm specializing in structured credit and asset-backed lending, and a 4.9% interest to management employees of JMPCA. The Company retained 45.0% of the equity interest in JMPCA. The sale of JMPCA was considered a reconsideration event as defined in Accounting Standard Codification (“ASC”) 810, Consolidation, which requires a new consolidation analysis, The sale of JMPCA also required Medalist to provide additional capital to purchase an equity interest in JMP Credit Advisors Long-Term Warehouse Ltd (“CLO VI”) to finance the acquisition of broadly syndicated corporate loans. On March 19, 2019, Medalist related entities purchased 66% of the outstanding equity interest of CLO VI for $7.6 million. There was no gain or loss recognized on the sale of the equity interest. After the sale of JMPCA, the Company lost the ability to direct the most significant activities of the following VIEs: JMP Credit Advisors CLO IV Ltd (“CLO IV”), JMP Credit Advisors CLO V Ltd (“CLO V”), and CLO VI (collectively with CLO III, the “CLOs”) and as a result, deconsolidated the aforementioned CLOs as of March 19, 2019 (except CLO III which was deconsolidated on January 17, 2019). Previously the Company concluded that it was the primary beneficiary of CLO IV, CLO V, and CLO VI through its control over JMPCA and its ownership of 100% of the equity interests of these CLOs. a debt security and classifies them as available-for-sale securities. The Cash received: Retained interest, at fair value (1) Non-controlling interest, at carrying value Total of consideration received, retained interest, and non-controlling interest Less: Net assets of deconsolidated subsidiaries, at carrying value (2) Gain on deconsolidation Gain on remeasurement of CLO IV and CLO V senior subordinated notes Total gain on deconsolidation 2. Summary of Significant Accounting Policies Basis of Presentation These consolidated financial statements and related notes are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, The consolidated accounts of the Company include the wholly-owned subsidiaries and the partially-owned subsidiaries of which we are the majority owner or the primary beneficiary. All material intercompany accounts and transactions have been eliminated in consolidation. Non-controlling interests on the Consolidated Statements of Financial Condition at For the 3. Recent Accounting Pronouncements Accounting Standards to be adopted in Future Periods ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), was issued in June 2016, with subsequent amendments, to replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance will be effective for public business entities that meet the definition of a smaller reporting company for fiscal years and all interim periods within those fiscal years, beginning after December 15, 2022. The Company is evaluating the impact of the adoption of this standard. ASU Recently Adopted Accounting Guidance ASU 2018-13, Fair Value Measurement (Topic 820), was issued in August 2018 as part of the disclosure framework project to improve the effectiveness of the disclosures in the notes to the financial statements. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The new guidance will be effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. 4. Fair Value Measurements The following tables provide fair value information related to the Company’s financial instruments at September 30, 2019 March 31, 2020 (In thousands) Carrying Value Fair Value Carrying Value Fair Value Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents Restricted cash and deposits Marketable securities owned Other investments Other investments, measured at net asset value (1) Loans held for investment, net of allowance for loan losses Total assets: Liabilities: Marketable securities sold, but not yet purchased Notes payable Bond payable Total liabilities: December 31, 2018 December 31, 2019 (In thousands) Carrying Value Fair Value Carrying Value Fair Value Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents Restricted cash and deposits Marketable securities owned Other investments Other investments, measured at net asset value (1) Loans held for sale Loans held for investment, net of allowance for loan losses Loans collateralizing asset-backed securities issued, net of allowance for loan losses Total assets: Liabilities: Marketable securities sold, but not yet purchased Asset-backed securities issued, net of debt issuance costs Notes payable CLO warehouse credit facilities Bond payable Total liabilities: (1) In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The carrying value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the The Company determined the fair value of notes payable to approximate their carrying values. This was determined as the debt has a variable interest rate tied to LIBOR and therefore reflects market conditions. Based on the fair value methodology, the Company has identified this debt as Level 2 liabilities. The fair value of loans held for investment identified as Level 3 assets are determined using the discounted cash flow model using the treasury rate, loan interest rate, and an internally generated risk rate. Recurring Fair Value Measurement The following tables provide information related to the Company’s assets and liabilities carried at fair value on a recurring basis at (In thousands) September 30, 2019 March 31, 2020 Carrying Value Level 1 Level 2 Level 3 Total Carrying Value Level 1 Level 2 Level 3 Total Marketable securities owned Other investments: Equity investments Investments in hedge funds managed by the Company Investments in other funds managed by the Company (1) Limited partnership in investments in private equity/ real estate funds (1) Total other investments Total assets: Marketable securities sold, but not yet purchased Total liabilities: (In thousands) December 31, 2018 December 31, 2019 Carrying Value Level 1 Level 2 Level 3 Total Carrying Value Level 1 Level 2 Level 3 Total Marketable securities owned Other investments: Investments in hedge funds managed by the Company Equity investments Investments in other funds managed by the Company (1) Limited partnership in investments in private equity/ real estate funds (1) Total other investments Total assets: Marketable securities sold, but not yet purchased Total liabilities: (1) As of Transfers between levels of the fair value hierarchy result from changes in the observability of fair value inputs used in determining fair values for different types of financial assets and are recognized at the beginning of the reporting period in which the event or change in circumstances that caused the transfer occurs. The Company’s policy is to recognize the fair value of transfers among Levels 1, 2 and 3 as of the end of the reporting period. For recurring fair value measurements, there were no transfers between Levels 1, 2 and 3 for the The investments in private equity funds managed by HCS and JMPAM are recognized using the fair value option. The Company uses the reported net asset value per share as a practical expedient to estimate the fair value of the funds. The risks associated with these investments are limited to the amounts of invested capital, remaining capital commitment and any management and incentive fees receivable. The For the (In thousands) Equity Investment Total Balance as of December 31, 2019 Accrued interest Investment distributions Unrealized gains on investments, recognized in OCI Unrealized losses on investments, recognized in earnings Balance as of March 31, 2020 The Company’s Level 3 assets held in marketable securities consist of investments in CLO debt securities. The fair value of the CLO debt securities is determined using the net present value of discounted cash flows. The significant unobservable inputs used in the fair value measurement (In thousands) Total Balance as of December 31, 2018 Fair value at recognition date Purchases Accrued interest Unrealized losses on investments, recognized in OCI Balance as of March 31, 2019 Accrued interest Purchases Investment distributions Unrealized gains on investments, recognized in earnings Realized losses on sales, recognized in earnings Sales Balance as of September 30, 2019 For assets classified in the Level 3 hierarchy, any changes to any of the inputs to the fair value measurement could result in a significant increase or decrease in the fair value measurement. For CLO debt securities, a significant increase (decrease) in the discount rate, default rate, and severity rate would result in a significant decrease (increase) in the fair value of the instruments. For the equity Significant Unobservable Inputs (In thousands) Range (Weighted-average) Fair Value Valuation Technique Description September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018 CLO debt security Discounted cash flows Risk adjusted discounting factor Default rate Severity rate Prepay rate Collateral liquidation price Equity investments Discounted cash flows Credit factor Risk adjusted discounting factor Market EBITDA Multiple Significant Unobservable Inputs (In thousands) Range (Weighted-average (1)) Fair value Valuation Technique Description March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019 CLO debt securities Discounted cash flows Discount rate Collateral liquidation price Equity investment Discounted cash flows Credit factor Discount rate (1) The weighted average was calculated based on the relative collateral balance of each CLO. As of Fair Value at Unfunded Commitments Fair Value at Unfunded Commitments Dollars in thousands Frequency Period 2019 2018 2019 2018 Frequency Period 2020 2019 2020 2019 Limited partner investments in private equity/ real estate funds Nonredeemable Nonredeemable Investment in other funds managed by the Company Nonredeemable Nonredeemable The Company's 5. The following table summarizes available-for-sale securities, which have been included in marketable securities on the Consolidated Statements of Financial Condition, in an unrealized position as of (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Total Impairment in OCI Number of Positions CLO IV junior subordinated notes CLO V junior subordinated notes Total (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Number of Positions CLO III subordinated notes Total March 31, 2020 December 31, 2019 (In thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Number of positions Amortized cost Gross unrealized gains Gross unrealized losses Fair value Number of positions CLO debt securities The following table summarizes the fair value and amortized cost of the available-for-sale March 31, 2020 December 31, 2019 (In thousands) Available-for-Sale Held-to-Maturity Available-for-sale Available-for-sale Amortized Cost Fair Value Amortized Cost Fair Value Amortized cost Fair value Amortized cost Fair value 5-10 years 10+ years Total (In thousands) Less than 12 months(1) Greater than 12 months Total Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss CLO III subordinated notes CLO IV junior subordinated notes CLO V junior subordinated notes Total During the three months ended 6. Loans Loans collateralizing During the period ending (In thousands) Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31, 2019 2018 2019 2018 2019 Impaired Non-Impaired Impaired Non-Impaired Impaired Non-Impaired Impaired Non-Impaired Impaired Non-Impaired Balance, at beginning of period Provision for loan losses: Specific reserve General reserve Charge off Derecognition due to deconsolidation Balance, at end of period Loans Held for Investment As of March 31, 2020 and December 31, 2019, the number of loans held for investment was four. The Company reviews the credit quality of these loans within this portfolio segment on a loan by loan basis mainly focusing on the borrower’s financial position and results of operations as well as the current and expected future cash flows on the loans. On March 19, 2019, the Company deconsolidated its investments in the CLO VI warehouse and a result, no longer has loans held for investment related to CLO VI on its Consolidated Statements of Financial Condition as of March 31, 2020 and December 31, 2019. See Note 1 for additional information on the deconsolidation. A loan is considered to be impaired when, based on current information, it is probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the original loan agreement, including scheduled principal and interest payments. (In thousands) Recorded Investment Related Allowance Average Recorded Investment December 31, 2018 Impaired loans with an allowance recorded Impaired loans with no related allowance recorded Total impaired loans (In thousands) Cash Flow Loans September 30, December 31, 2019 2018 Moody's rating: Baa1 - Baa3 Ba1 - Ba3 B1 - B3 Caa1 - Caa3 Ca Total: Internal rating: (1) Total: Performance: Performing Non-Performing Total: There were no loans impaired, past due or on non-accrual status as of March 31, 2020 (in thousands) Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31, 2019 2018 2019 2018 2019 Impaired Non-impaired Impaired Non-impaired Impaired Non-impaired Impaired Non-impaired Impaired Non-impaired Balance, at beginning of the period Provision for loan losses Specific General Charge off Derecognition due to deconsolidation Balance, at end of the period Recorded Investment Unpaid Principal Related Allowance Average Recorded Investment Interest Income Recognized September 30, 2019 Impaired loans with an allowance recorded Impaired loans with no related allowance recorded Total impaired loans Recorded Investment Unpaid Principal Related Allowance Average Recorded Investment December 31, 2018 Impaired loans with an allowance recorded Impaired loans with no related allowance recorded Total impaired loans (In thousands) Cash Flow Loans September 30, December 31, 2019 2018 Moody's rating: Baa1 - Baa3 Ba1 - Ba3 B1 - B3 Caa1 - Caa3 Ca Not Rated Total: Internal rating: (1) Not rated Total: Performance: Performing Non-performing Total: 7. Debt Bond Payable (In thousands) September 30, 2019 December 31, 2018 March 31, 2020 December 31, 2019 8.00% Senior Notes due 2023 7.25% Senior Notes due 2027 Total outstanding principal Less: Debt issuance costs Less: Consolidation elimination Total bond payable, net On September 26, 2019, the Company issued $36.0 million of 6.875% senior notes (the On September 27, 2019, the Company announced JMP Group Inc. The 7.25% senior notes due 2027 (the In March 2020, the Company repurchased $1.4 million and $0.7 million par value of its issued and outstanding 2019 Senior Notes and 2017 Senior Notes, respectively. Since they were repurchased at less than carrying value, a gain of $0.7 million was recognized upon the repurchase of the bonds, which has been included in the Consolidated Statements of Operations, gain on repurchase, reissuance or early retirement of debt. The future scheduled principal payments of the debt obligations as of (In thousands) 2019 2020 2021 2021 2022 2023 Thereafter Total Note Payable, Lines of Credit and Credit Facilities (In thousands) Outstanding Balance Outstanding Balance September 30, 2019 December 31, 2018 March 31, 2020 December 31, 2019 $100 million, CLO VI warehouse credit facility through October 11, 2021 $25 million, JMP Holding credit agreement through December 31, 2020 $20 million, JMP Securities revolving line of credit through June 6, 2020 Note payable Note payable to an affiliate (Note 18) Total note payable, lines of credit, and credit facilities The The Credit Agreement provides that the Revolver may be used, on a revolving basis, to fund specified permitted investments in collateralized loan obligation vehicles. In addition, up to $5.0 million of the Revolver may be used, on a revolving basis, to fund other types of permitted investments and acquisitions and for working capital. The Credit Agreement contains financial and other covenants, including, but not limited to, limitations on debt, liens and investments, as well as the maintenance of certain financial covenants. The Credit Agreement also includes an event of default for a “change of control” that tests, in part, the composition of our ownership and an event of default if three or more of the members of the Company’s executive committee fail to be involved actively on an ongoing basis in the management of the Company or any of its subsidiaries. A violation of any one of these covenants could result in a default under the Credit Agreement, which would permit CNB to terminate JMP Holding's obligations under the Credit Agreement are guaranteed by all of its wholly owned subsidiaries (other than JMP Securities and certain dormant subsidiaries) and are secured by substantially all of its and the guarantors' assets. In addition, we have entered into a limited recourse pledge agreement whereby we have granted a lien on all of our equity interests in JMP Investment Holdings and JMPAM to secure JMP Holding's obligations under the Credit Agreement. Separately, under a Revolving Note and Cash 8. (In thousands) As of December 31, 2018 Class A Senior Secured Floating Rate Notes Class B Senior Secured Floating Rate Notes Class C Senior Secured Deferrable Floating Rate Notes Class D Senior Secured Deferrable Floating Rate Notes Class E Senior Secured Deferrable Floating Rate Notes Total secured notes sold to investors Senior Subordinated Notes Less: Debt issuance costs Total asset-backed securities issued (In thousands) March 31, 2020 December 31, 2019 Accounts receivable Prepaid expenses Deferred tax asset Loans held for sale Other assets Total other assets Loans held for sale are carried at the lower of cost or fair value less cost to sell and (In thousands) March 31, 2020 December 31, 2019 Accounts payable & accrued liabilities Deferred compensation liabilities Deferred tax liability Other liabilities Total other liabilities The calculated amount of the ROU asset and lease liability are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. The incremental borrowing rate used to calculate the lease liability was determined based on the Company’s outstanding debt and consideration of other factors including credit standing and term of debt as of the effective date of ASC 842. Additionally, the lease term and lease payments were also considered in determining the rate. Based on these considerations, the Company determined a collateralized borrowing rate that could be matched to total lease terms and total lease payments in ultimately calculating the implied borrowing rate in each lease contract. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. As of March 31, 2020, the weighted average remaining lease term and discount rate for the Company’s operating leases were as follows: Weighted-average remaining lease term Operating leases Weighted-average discount rate Operating leases Year Ending December 31, 2019 2020 2021 2022 2023 Thereafter Total minimum future lease payments Amounts representing interest Present value of net future minimum lease payments Nine Months Ended Three Months Ended September 30, 2019 March 31, 2020 Cash paid for amounts included in the measurement of lease liabilities Cash used in operating activities Operating leases 10. Shareholders’ Equity Self-Tender On May 13, 2019, the Company launched a self-tender offer (the On February 24, 2020, the Company launched a second tender offer (the “2020 Tender Offer”) to repurchase for cash up to 3,000,000 shares representing limited liability company interests in the Company. The 2020 Tender Offer was terminated on March 19, 2020 as a result of multiple conditions to the 2020 Tender Offer, including share price and market index conditions, not having been satisfied. On February 19, 2020, the Company suspended its quarterly cash distributions program on outstanding shares. 11. Accumulated Other Comprehensive Income (Loss) The following (In thousands) Before Tax Tax Effect Net of Tax Beginning, January 1, 2019 Net unrealized losses during the period Balance as of March 31, 2019 Net unrealized losses during the period Balance as of September 30, 2019 (In thousands) Before Tax Tax Effect Net of Tax Beginning balance, January 1, 2020 Net unrealized losses on available-for-sale securities during the period Balance as of March 31, 2020 (In thousands) Before Tax Tax Effect Net of Tax Beginning balance, January 1, 2019 Net unrealized losses on available-for-sale securities during the period Balance as of March 31, 2019 12. Share-Based Compensation On January 27, 2015, the board of directors adopted the JMP Group LLC Amended and Restated Equity Incentive Plan (“JMP Group Plan”). The plan maintains authorization of the issuance of 4,000,000 shares, as originally approved by shareholders on April 12, 2007 and subsequently approved by shareholders on June 6, 2011. This amount is increased by any shares the Company purchases on the open market, or through any share repurchase or share exchange program, initiated by the Company unless the board of directors or its appointee determines otherwise. The Company will issue shares upon exercises or vesting from authorized but unissued shares or from treasury shares. Share Options The following table summarizes the share option activity for the Nine Months Ended Three Months Ended September 30, 2019 March 31, 2020 Shares Subject to Option Weighted Average Exercise Price Shares Subject to Option Weighted Average Exercise Price Balance, beginning of year Balance, end of period Options exercisable at end of period The following table summarizes the share options outstanding as well as share options vested and exercisable as of September 30, 2019 March 31, 2020 Options Outstanding Options Vested and Exercisable Options Outstanding Options Vested and Exercisable Weighted Weighted Weighted Weighted Average Weighted Average Weighted Average Weighted Average Weighted Range of Remaining Average Aggregate Remaining Average Aggregate Remaining Average Aggregate Remaining Average Aggregate Exercise Number Contractual Exercise Intrinsic Number Contractual Exercise Intrinsic Number Contractual Exercise Intrinsic Number Contractual Exercise Intrinsic Prices Outstanding Life in Years Price Value Exercisable Life in Years Price Value Outstanding Life in Years Price Value Exercisable Life in Years Price Value $6.79 - $7.33 $3.04 The asset-backed securities issued (“ABS” by the VIE are limited recourse obligations payable solely from cash flows of the loans collateralizing them and related collection and payment accounts pledged as security. Accordingly, only the assets of the VIE can be used to settle the obligations of the VIE. $ 15,228 $ 21,095 $ 44,843 $ 70,319 $ 14,625 $ 11,879 3,968 4,676 13,160 14,787 4,187 4,535 1,628 3,702 5,685 15,505 1,716 1,703 (340 ) 469 6,371 (1,467 ) (17,552 ) 5,288 - (556 ) (38 ) (888 ) - (17 ) 279 320 868 935 227 296 759 306 1,517 666 Other income (loss) 935 (35 ) 21,522 30,012 72,406 99,857 4,138 23,649 2,328 18,652 19,391 47,031 2,214 14,291 (1,930 ) (13,789 ) (14,642 ) (35,125 ) (1,782 ) (10,773 ) 398 4,863 4,749 11,906 432 3,518 (458 ) (170 ) (458 ) (2,838 ) (438 ) (1,454 ) (438 ) (4,199 ) 21,024 33,251 76,259 104,726 Gain on repurchase, reissuance or early retirement of debt 697 - Total net revenues 5,267 27,167 17,506 22,671 54,673 76,070 16,213 17,222 2,301 2,302 6,978 7,246 2,222 1,929 617 808 2,051 2,373 634 701 1,263 1,080 3,631 3,236 922 1,021 685 614 2,552 4,528 588 533 1,061 1,040 3,241 3,149 1,129 1,053 1,196 1,172 4,028 3,432 1,199 1,423 1,236 1,272 3,513 4,315 890 1,456 307 285 915 836 548 297 200 369 700 1,532 - 495 26,372 31,613 82,282 106,717 24,345 26,130 (5,348 ) 1,638 (6,023 ) (1,991 ) (1,220 ) 527 (5,839 ) (146 ) Net income (loss) before income taxes (19,078 ) 1,037 Income tax benefit (7,239 ) (4,102 ) (4,128 ) 1,111 (184 ) (1,845 ) (11,839 ) 5,139 (67 ) 823 (80 ) 138 Less: Net income (loss) attributable to non-controlling interest (91 ) 70 $ (4,061 ) $ 288 $ (104 ) $ (1,983 ) $ (11,748 ) $ 5,069 $ (0.21 ) $ 0.01 $ (0.01 ) $ (0.09 ) $ (0.60 ) $ 0.24 $ (0.21 ) $ 0.01 $ (0.01 ) $ (0.09 ) $ (0.60 ) $ 0.24 19,324 21,435 20,454 21,545 19,532 21,288 19,324 21,737 20,454 21,545 19,532 21,429 thousands, except per share data)thousands) $ (4,128 ) $ 1,111 $ (184 ) $ (1,845 ) $ (11,839 ) $ 5,139 709 - (1,860 ) - (3,419 ) 1,111 (2,044 ) (1,845 ) Unrealized loss on available-for-sale securities, net of tax (8,609 ) (782 ) Reclassification adjustments for losses on available-for-sale securities, net of tax 9,890 - Other comprehensive income (loss) 1,281 (782 ) (10,558 ) 4,357 (67 ) 823 (80 ) 138 (91 ) 70 $ (3,352 ) $ 288 $ (1,964 ) $ (1,983 ) $ (10,467 ) $ 4,287 Additional Paid-In Accumulated Other Comprehensive Nonredeemable Non-controlling 22,780 $ 23 $ (7,932 ) $ 134,129 $ (42,513 ) $ - $ 13,499 $ 97,206 - - - - (104 ) - (80 ) (184 ) - - - 765 - - - 765 - - - - (2,686 ) - - (2,686 ) - - (8,763 ) - - - - (8,763 ) Reissuance of shares of common shares from treasury - - 826 (129 ) - - - 697 Common shares issued 17 - - 93 - - - 93 - - - - - - (913 ) (913 ) - - - - - - (12,842 ) (12,842 ) - - - - - (1,860 ) - (1,860 ) Balance, September 30, 2019 22,797 $ 23 $ (15,869 ) $ 134,858 $ (45,303 ) $ (1,860 ) $ (336 ) $ 71,513 22,797 $ 23 $ (14,872 ) $ 133,894 $ (52,588 ) $ (4,769 ) $ (327 ) $ 61,361 - - - - (11,748 ) - (91 ) (11,839 ) - - - 266 - - - 266 - - (26 ) - - - - (26 ) - - 200 (32 ) - - - 168 - - - - - 1,281 - 1,281 22,797 $ 23 $ (14,698 ) $ 134,128 $ (64,336 ) $ (3,488 ) $ (417 ) $ 51,212 Additional Paid-In Accumulated Other Comprehensive Nonredeemable Non-controlling 22,780 $ 23 $ (5,955 ) $ 134,719 $ (32,452 ) $ - $ 13,844 $ 110,179 22,780 $ 23 $ (7,932 ) $ 134,129 $ (42,513 ) $ - $ 13,499 $ 97,206 - - - - (1,983 ) - 138 (1,845 ) - - - - 5,069 - 70 5,139 - - - 857 - - - 857 - - - 144 - - - 144 - - - - (5,906 ) - - (5,906 ) - - - - (1,070 ) - - (1,070 ) - - (2,340 ) - - - - (2,340 ) - - (753 ) - - - - (753 ) - - 387 40 - - - 427 - - 357 (39 ) - - - 318 - - - (656 ) - - 656 - - - - - - - (1,527 ) (1,527 ) - - - - - - (913 ) (913 ) - - - - - - 449 449 22,780 $ 23 $ (7,908 ) $ 134,960 $ (40,341 ) $ - $ 13,560 $ 100,294 - - - - - - (12,842 ) (12,842 ) - - - - - (782 ) - (782 ) 22,780 $ 23 $ (8,328 ) $ 134,234 $ (38,514 ) $ (782 ) $ (186 ) $ 86,447 $ (184 ) $ (1,845 ) 438 4,199 38 888 458 2,838 Net (loss) income $ (11,839 ) $ 5,139 (697 ) - (1,305 ) 273 (297 ) 46 (156 ) (179 ) (1,098 ) 205 (292 ) (1,192 ) 1,316 1,067 435 1,827 1,590 1,135 432 462 (3,520 ) - - (3,520 ) Distributions of investment income from equity method investees 492 - 256 - 293 296 6 76 (4,899 ) (787 ) (950 ) (1,454 ) 110 (4,838 ) 3,309 1,039 9,643 631 18,828 3,563 (10,181 ) 6,937 (5,940 ) (7,978 ) (1,789 ) (2,315 ) (1,896 ) (1,930 ) (4,034 ) 3,859 191 (3,548 ) (23,475 ) (9,760 ) (24,661 ) (35,695 ) 6,895 1,967 (30,428 ) 7,955 (1,188 ) 3,171 Net cash used in operating activities (23,243 ) (43,378 ) (1,341 ) (877 ) (266 ) (637 ) (12,538 ) (1,525 ) (39 ) (844 ) 10,655 13,949 13,694 8,312 (35,153 ) (307,808 ) - (35,153 ) (25,679 ) (312,089 ) - (25,102 ) 23,806 268,239 - 23,806 7,211 26,726 34 6,876 (27,771 ) - - (27,771 ) (60,810 ) (313,385 ) 13,423 (50,513 ) - 3,878 - (3,878 ) 16,583 - 7,750 263,750 - 7,750 - 829 Proceeds from bond issuance 36,000 - (1,887 ) (1,897 ) (1,600 ) - (801 ) (332,100 ) - (801 ) Repayments on CLO warehouse facilities - (325,000 ) (35,977 ) (9,980 ) - 699,107 - 4,453 (1,349 ) - (2,686 ) (5,906 ) - (1,070 ) - 449 (8,614 ) (2,309 ) - (669 ) (913 ) (1,527 ) - (913 ) (184 ) (31 ) (26 ) (84 ) 7,671 289,838 (1,375 ) 4,213 (83,567 ) (15,592 ) (11,195 ) (89,678 ) 132,808 137,321 50,917 132,808 $ 49,241 $ 121,729 $ 39,722 $ 43,130 $ 18,676 $ 31,266 $ 1,680 $ 14,321 $ 2,060 $ 2,173 Cash paid (received) during the period for taxes, net of refunds $ (7 ) $ 89 $ 954 $ 387 $ 200 $ 357 $ - $ 643 $ - $ 640 $ 259 $ 809 $ - $ 259 Transfer of loans held for investment to loans collateralizing asset-backed securities issued upon securitization of CLO V $ - $ 362,213 $ 23,604 $ - $ - $ 23,604 $ 29,278 $ - $ - $ 29,278 $ 1,226,848 $ - $ - $ 1,226,848 $ 1,161,933 $ - $ - $ 1,161,933 $ 12,842 $ - $ - $ 12,842 $ 76,879 $ - $ - $ 76,879 $ 7,516 $ - $ - $ 7,516 JMP GroupLLCSeptember 30, 2019March 31, 2020capital marketsfinancial services firm headquartered in San Francisco, California. The Company conducts its investment banking and institutional brokerage business through JMP Securities LLC (“JMP Securities”) and its asset management business through Harvest Capital Strategies LLC (“HCS”), HCAP Advisors LLC (“HCAP Advisors”), JMP Asset Management LLC (“JMPAM”), and JMP Credit Advisors LLC ("JMPCA"(“JMPCA”) (through March 19, 2019). The Company conducts certain principal investment transactions through JMP Investment Holdings LLC (“JMP Investment Holdings”) and other subsidiaries. The above entities, other than HCAP Advisors, are wholly-owned subsidiaries. JMP Securities is a U.S. registered broker-dealer under the Securities Exchange Act of 1934, as amended (the "Exchange“Exchange Act”), and is a member of the Financial Industry Regulatory Authority (“FINRA”). JMP Securities operates as an introducing broker and does not hold funds or securities for, or owe any money or securities to, customers and does not carry accounts for customers. All customer transactions are cleared through another broker-dealer on a fully disclosed basis. HCS is a registered investment advisor under the Investment Advisers Act of 1940, as amended, and provides investment management services for sophisticated investors in investment partnerships and other entities managed by HCS. HCAP Advisors provides investment advisory services to Harvest Capital Credit Corporation (“HCC”)., a publicly-traded business development company. JMPAM currently manages two fund strategies: one that invests in real estate and real estate-related enterprises and another that provides credit to small and midsized private companies. JMPCA, which was a wholly-owned subsidiary until March 19, 2019, is an asset management platform that underwrites and manages investments in senior secured debt. The Company completed a Reorganization Transaction in January 2015 pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Group LLC (the “Reorganization Transaction”). The Company entered into a Contribution Agreement in November 2017 pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Investment Holdings, which is a wholly-owned subsidiary of JMP Group LLC.has classified the subordinated notes as held-to-maturity. The Company recognized a gain of $1.6 million as revenue from principal transactions on the deconsolidation of CLO III in the period ended March 31, 2019. due to subsequent change in JMPCA ownership structure, and the Company determined that JMPCA is a VIE after the transaction date. The Company determined that it was not the primary beneficiary of JMPCA as the Company is not the party with the power to direct the most significant activities of JMPCA. As the Company determined that it is not the primary beneficiary, the Company deconsolidated JMPCA as of the date of sale. As the Company retained 45.0% of the equity interest of JMPCA and has significant influence, the Company has determined that it is required to account for its retained interest as an equity method investment, however the Company has made the election to apply the fair value option to this investment. The Company received a cash payment of $0.3 million in consideration for the limited liability company interest sold and recorded a gain of $3.4 million on deconsolidation as revenue from principal transactions. The Company will receive a portion of the subordinated management fees from the CLOs JMPCA managed as of the date of the sale and from CLO VI, once it securitizes.sale. After the sale, JMPCA was renamed Medalist Partners Corporate Finance LLC.LLC (“MPCF”).The Company continues to hold 100% of the junior subordinated notes of CLO IV and CLO V and approximately 33% of the equity interests of CLO VI as of September 30, 2019. The Company owned 100% and 25% of the senior subordinated notes of CLO IV and CLO V, respectively, as of the date of deconsolidation. The Company sold all of its senior subordinated notes in CLO IV and CLO V in May 2019. The Company accounts for its ownership of the subordinated notes as an investment in a debt security and accounts for its ownership of the CLO VI equity interest as an equity investment. The Company classifies the junior subordinated notes of CLO IV and CLO V as available-for-sale securities and classified the senior subordinated notes as trading securities. Collectively, the Company recognized a loss on the deconsolidation of CLO IV, CLO V, and CLO VI of $1.8 million in March 2019 in revenues from principal transactions. The Company recorded a loss of $0.1 million on the salecontinues to hold 100% of the seniorjunior subordinated notes of CLO IV and CLO V and accounts for its ownership of these subordinated notes as an investment in May 2019 in revenues from principal transactions.deconsolidationCompany owned approximately 33% of the CLOs and JMPCA was accounted for based on the guidance in ASC 810, Consolidation. According to that guidance, the gain or loss on deconsolidation is calculated as the difference between (i) the aggregateequity interests of the fair valueCLO VI warehouse as of December 31, 2019. In February 2020, MPCF completed the retained interest insecuritization of Medalist Partners Corporate Finance CLO VI Ltd upon which the former subsidiaries, the fair value of any consideration received, and the carrying value of the non-controlling interest in the former subsidiaries; and (ii) the carrying value of the assets and liabilities of the former subsidiaries. The gain recognized by the Company is primarily the result of the remeasurement of the retained interest in the CLOs and JMPCA. The difference between theserelated CLO VI warehouse was recorded as a gain on deconsolidation in the Consolidated Statements of Operations under principal transactions revenue. The following table represents the consideration received, the fair value of the retained interest, and the resulting gain on deconsolidation of the CLOs and JMPCA: $ 7,942 74,989 12,842 $ 95,773 92,581 3,192 328 $ 3,520 (1)The fair value of the Company's retained interest in CLO III, CLO IV, CLO V, CLO VI, and JMPCA as of the deconsolidation date was $13.3 million, $27.8 million, $26.5 million, $3.8 million, and $3.6 million, respectively(2)The book value of the net assets of CLO III, CLO IV, CLO V, CLO VI, and JMPCA as of the deconsolidation date was $24.5 million, $30.2 million, $25.8 million, $11.6 million, and $0.5 million, respectivelyOn August 8, 2019, Medalist closed a refinancing of the asset-backed securities issued by CLO IV, which lowered the weighted average cost of funds. The refinancing of CLO IV had no impact on the Company's accounting for the investment in the CLO IV debt securities including the decision to deconsolidate CLO IV.On September 26, 2019, the Company issued $36.0 million of 6.875% senior notes (the "2019 Senior Notes"). The 2019 Senior Notes will mature on September 30, 2029, may be redeemable in whole or in part at any time or from time to time at JMP Group LLC’s option on or after September 30, 2021, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The notes bear interest at a rate of 6.875% per year, payable quarterly on March 30, June 30, September 30, and December 30 of each year, and commencing on December 30, 2019.On September 27, 2019 the Company announced JMP Group Inc.'s intention to redeem the JMP Group Inc. outstanding 8.00% senior notes (the "2013 Senior Notes") on October 28, 2019.liquidated. The Company opted to pay the principal and contractually owed interest to the trustee, U.S. Bank National Association, in order to satisfy and discharge the debt asdoes not hold any subordinated notes of September 27, 2019. On September 27, 2019 the Company deposited sufficient funds with the trustee to satisfy and discharge the 2013 Senior Notes and the trustee acknowledged such satisfaction and discharge. In connection with the redemption, the Company recorded losses on early retirement of debt related to unamortized bond issuance costs of $0.5 million and recognized an additional $0.2 million of interest expense on the accelerated repayment during the quarter ended September 30, 2019.Medalist Partners Corporate Finance CLO VI Ltd. 20182019 filed with the SEC on March 30, 2020 (the “Annual Report”). The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.September 30, 2019March 31, 2020 and December 31, 20182019 relate to the interest of third parties in the partially-owned subsidiaries. Certain prior year amounts have been reclassified to conform to current year presentation.Company'sCompany’s Annual Report for the Company'sCompany’s significant accounting policies.ninethree months ended September 30, 2019March 31, 2020, there were no significant changes made to the Company’s significant accounting policies other than those described below and the accounting policy changes are attributable to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The Company adopted this standard on January 1, 2019 using a modified retrospective approach. Accordingly, the new leasing standard was applied prospectively in the Company’s financial statements from January 1, 2019 forward and reported financial information for historical comparable periods was not revised and will continue to be reported under the accounting standards in effect during those historical periods. Refer to Note 3 - Recent Accounting Pronouncements, for additional information.CLO Debt SecuritiesInvestments in CLO debt securities are accounted for according to their purpose and holding period. CLO debt security investments that are classified as trading securities are those that are bought and held principally for the purpose of selling them in the near term. The Company had zero CLO debt securities classified as trading securities as of September 30, 2019 and December 31, 2018. The Company previously classified its senior subordinated notes in CLO IV and CLO V as trading securities, but sold these notes in May 2019 and recognized a loss of $0.1 million for the nine months ended September 30, 2019. The Company’s investments in debt securities classified as available-for-sale are comprised of junior subordinated notes in CLO IV and CLO V and are those that may be sold before maturity and are reported at fair value with unrealized gains and losses, net of taxes, reported as a component of other comprehensive income ("OCI"). The Company had $53.2 million and zero CLO debt securities classified as available-for-sale securities as of September 30, 2019 and December 31, 2018, respectively. The Company’s investment in CLO debt securities classified as held-to-maturity are comprised of CLO III junior subordinated notes and are those that management has the positive intent and ability to hold to maturity and are reported at amortized cost. The Company had $12.8 million and zero CLO debt securities classified as held-to-maturity securities as of September 30, 2019 and December 31, 2018, respectively. Interest on CLO debt securities are recognized in interest income on an accrual basis using the effective yield method. Realized gains and losses on the sale of debt securities are determined using the specific identification method and recognized in current period earnings in revenues from principal transactions.The Company evaluates the available-for-sale and held-to-maturity investments in debt securities for impairment quarterly. As part of the evaluation, the Company obtains the new cash flow projections for the CLO debt securities at period end and determines, based on those cash flows and other current information, if there has been a favorable or adverse change in the cash flows expected to be collected as compared to the projected cash flows from the prior period. An adverse change in cash flows is determined in the context of both the timing and the amount of the cash flows. An impairment would be recorded if the net present value of the cash flows of the investment is below the amortized cost basis of the investment and the Company does not expect to recover the amortized cost basis before the security is expected to be sold or the security matures, whichever comes first. Should the Company determine that there is an impairment, the amount of the impairment is bifurcated between losses related to credit losses, which is recognized in revenues from principal transactions, and all other factors, which is recognized in OCI. The Company recorded no impairment on CLO debt securities for either of the three or nine months ended September 30, 2019 and 2018.below. 20172019-12,-08, Receivables-Nonrefundable Fees and Other Costs (Sub-topic 310-20)Income Taxes (Topic 740): Premium Amortization on Purchased Callable Debt Securities,Simplifying the Accounting for Income Taxes, was issued in March 2017December 2019 to shortensimplify the amortization periodaccounting for income taxes. This guidance eliminates certain purchased callable debt securities held at a premium. It requiresexceptions to the premiumgeneral approach to be amortized over the period until the earliest call date. The amendment does not make any changes for securities held at a discount. Theincome tax accounting model, and adds new guidance will beto reduce the complexity in accounting for income taxes. This guidance is effective for public business entities for fiscal yearsannual periods beginning after December 15, 2019, and2020, including interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period.those annual periods. The Company is currently evaluating the impact of the adoption of this standard.The Company is evaluatingWe adopted the impact ofguidance effective January 1, 2020; however, the adoption of this standard.Recently Adopted Accounting GuidanceASU 2016-02, Leases (Topic 842), was issued in February 2016, with subsequent amendments, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilitiesdid not have a material impact on the balance sheet and disclosing information about leasing arrangements. The standard requires lessees to recognize the assets and liabilities arising from operational leases on the balance sheet. The Company adopted this standard on January 1, 2019 using a modified retrospective approach and recognized its lease agreements as a right-of-use asset with a corresponding lease liability to reflect the present value of the future lease payments. Accordingly, the new leasing standard was applied prospectively in the Company’s financial statements from January 1, 2019 forward and reported financial information for historical comparable periods was not revised and will continue to be reported under the accounting standards in effect during those historical periods. Additionally upon adoption the Company elected the package of practical expedients for leases that commenced before the date of adoption in which the Company was not required to reassess (i) whether any existing or expired contracts contain leases, (ii) the lease classification of existing or expired leases, and (iii) initial direct costs of existing or expired leases. On January 1, 2019, the Company recognized $23.6 million as an operating lease right-of-use asset and $29.3 million as an operating lease liability on theour Consolidated Statements of Financial Condition related to its leasing obligations. As of September 30, 2019, the Company carried a $20.3 million operating lease right-of-use asset and a $26.1 million operating lease liability on theConditions or Consolidated Statements of Operations or on the disclosures in our Notes to the Consolidated Financial Condition related to its leasing obligations.Statements.September 30, 2019March 31, 2020 and December 31, 20182019: $ 48,020 $ 48,020 $ - $ - $ 48,020 $ 38,435 $ 38,435 $ - $ - $ 38,435 1,221 1,221 - - 1,221 1,287 1,287 - - 1,287 83,555 17,578 - 65,277 82,855 56,024 9,804 - 46,220 56,024 4,164 - 201 3,963 4,164 3,267 - - 3,267 3,267 10,228 - - - - 10,201 - - - - Loans held for sale 2,412 - - 2,412 2,412 4,777 - - 4,825 4,825 1,181 - - 1,093 1,093 $ 151,965 $ 66,819 $ 201 $ 74,065 $ 141,085 $ 112,807 $ 49,526 $ - $ 52,992 $ 102,518 $ 2,837 $ 2,837 $ - $ - $ 2,837 $ 1,959 $ 1,959 $ - $ - $ 1,959 15,812 - 14,983 829 15,812 6,812 - 5,983 829 6,812 82,427 - 87,618 - 87,618 80,636 - 54,210 - 54,210 $ 101,076 $ 2,837 $ 102,601 $ 829 $ 106,267 $ 89,407 $ 1,959 $ 60,193 $ 829 $ 62,981 $ 70,927 $ 70,927 $ - $ - $ 70,927 $ 49,630 $ 49,630 $ - $ - $ 49,630 61,881 61,881 - - 61,881 1,287 1,287 - - 1,287 18,874 18,874 - - 18,874 73,101 15,245 - 57,856 73,101 490 - 490 - 490 3,956 - - 3,956 3,956 9,423 - - - - 10,250 - - - - 2,412 - - 2,476 2,476 29,608 - 26,188 2,576 28,764 1,210 - - 1,087 1,087 1,161,463 - 1,125,310 1,173 1,126,483 $ 1,352,666 $ 151,682 $ 1,151,988 $ 3,749 $ 1,307,419 $ 141,846 $ 66,162 $ - $ 65,375 $ 131,537 $ 4,626 $ 4,626 $ - $ - $ 4,626 $ 3,855 $ 3,855 $ - $ - $ 3,855 1,112,342 - 1,091,677 - 1,091,677 829 - - 829 829 6,812 - 5,983 829 6,812 22,500 - 22,500 - 22,500 83,497 - 78,642 - 78,642 82,584 - 84,821 - 84,821 $ 1,223,794 $ 4,626 $ 1,192,819 $ 829 $ 1,198,274 $ 93,251 $ 3,855 $ 90,804 $ 829 $ 95,488 consolidated statementsConsolidated Statements of financial position.Financial Position. The carrying values of these lines reconciles to the parenthetical disclosure of other investments on the Statements of Financial Condition.September 30, 2019March 31, 2020 and December 31, 20182019: $ 70,739 $ 17,578 $ - $ 53,161 $ 70,739 $ 56,024 $ 9,804 $ - $ 46,220 $ 56,024 3,963 - - 3,963 3,963 3,267 - - 3,267 3,267 201 - 201 - 201 5,282 - - - - 5,211 - - - - 4,946 - - - - 4,990 - - - - 14,392 - 201 3,963 4,164 13,468 - - 3,267 3,267 $ 85,131 $ 17,578 $ 201 $ 57,124 $ 74,903 $ 69,492 $ 9,804 $ - $ 49,487 $ 59,291 2,837 2,837 - - 2,837 1,959 1,959 - - 1,959 $ 2,837 $ 2,837 $ - $ - $ 2,837 $ 1,959 $ 1,959 $ - $ - $ 1,959 $ 18,874 $ 18,874 $ - $ - $ 18,874 $ 73,101 $ 15,245 $ - $ 57,856 $ 73,101 490 - 490 - 490 3,956 - - 3,956 3,956 5,503 - - - - 5,188 - - - - 3,920 - - - - 5,062 - - - - 9,913 - 490 - 490 14,206 - - 3,956 3,956 $ 28,787 $ 18,874 $ 490 $ - $ 19,364 $ 87,307 $ 15,245 $ - $ 61,812 $ 77,057 4,626 4,626 - - 4,626 3,855 3,855 - - 3,855 $ 4,626 $ 4,626 $ - $ - $ 4,626 $ 3,855 $ 3,855 $ - $ - $ 3,855 In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The carrying values of these lines reconciles to the parenthetical disclosure of other investments on the Consolidated Statements of Financial Condition. September 30,March 31, 2020 and December 31, 2019,, marketable securities sold but not yet purchased were primarily comprised of U.S. listed securities. As of September 30,March 31, 2020 and December 31, 2019,, marketable securities was comprised of U.S. listed equity securities and CLO debt securities. As of December 31, 2018, both marketable securities owned and marketable securities sold, but not yet purchased, were primarily comprised of U.S. listed equity securities.ninethree months ended September 30, 2019March 31, 2020 and the year ended December 31, 20182019.The Company’s Level 2 assets held in other investments consist of investments in hedge funds managed by HCS. The carrying value of investments in hedge funds are calculated using the equity method and approximates fair value. Earnings or losses attributable to these investments are recorded in principal transactions. These assets are considered Level 2 as the underlying hedge funds are mainly invested in publicly traded stocks whose value is based on quoted market prices. The Company’s proportionate share of those investments is included in the tables above.The Company determined the fair value of short-term debt, which includes notes payable and CLO credit facilities, to approximate their carrying values. This was determined as the debt has either (1) a variable interest rate tied to LIBOR and therefore reflects market conditions, or (2) a term less than one year and there have been no observable changes in the credit quality of the Company since the issuance of the debt. Based on the fair value methodology, the Company has identified short-term debt as Level 2 liabilities.Company'sCompany’s Level 3 assets in other investments is primarily comprised of investmentsan equity investment in equity securities ofa private companies.company. The Company determines the fair value of the investments either through (1)this investment using the net present value of discounted cash flows of the estimated value of the put option of the investment or (2) using a market multiples approach. For the investment whose fair value determined using the discounted cash flows approach, the Company has a put option on this investment that is exercisable at three times the management fee revenue of the entity for the prior twelve months as of the effective date of the put option. The put option may be elected beginning March 31, 2022.flows. The significant unobservable inputs underused in the fair value measurement of this approachinvestment are presented in the estimated twelve months of revenues, the credit factor and the discount rate.Significant Unobservable Inputs table below. For this investment, the Company elected the fair value option as the Company determined that the fair value of its option to put the equity securities was the best representation of the fair value of the investment.option. While the Company has made other investments in private equity investments,securities, it has not elected the fair value option for those investments as it is impractical to determine the fair value of those investments.investment whosethree months ended March 31, 2020, the changes in Level 3 assets measured at fair value is determined using the market multiples approach, the Company determines the enterprise value of the investment using the investments estimated EBITDA and an EBITDA multiple from comparable companies. on a recurring basis were as follows: CLO junior subordinated notes $ 57,856 $ 3,956 $ 61,812 2,176 - 2,176 (2,040 ) - (2,040 ) 1,751 - 1,751 (13,523 ) (689 ) (14,212 ) $ 46,220 $ 3,267 $ 49,487 under this approachof these investments are presented in the risk adjusted discount factors.Significant Unobservable Inputs table below. The Company also uses performance and covenant compliance information provided by the CLO manager along with other risk factors including default risk, prepayment rates, interest rate risk, and credit spread risk when valuing this investment. During the ninethree months ended September 30, 2019,March 31, 2020, the fair value of the Company'sCompany’s investment in CLO debt securities declined due to changesa decrease in market interest rates and the expected future cash flows from CLO debt securities, primarily due to an increase in estimated credit losses in the CLO portfolios. The CLO debt securities were not determined to be impaired. This conclusion was reached as the reduction in fair value was not due to credit factorsimpaired and the Company believes that any reductionrecorded a $13.5 million impairment charge which is included in fair value can be recovered beforeprincipal transaction revenues on the security is sold or matures, whichever comes first.Consolidated Statements of Operations.For the three and nine months ended September 30, 2019, the changes in Level 3 assets measured at fair value on a recurring basis were as follows: CLO Junior Subordinated Notes CLO Senior Subordinated Notes Equity Investment $ - $ - $ 57 $ 57 54,279 9,289 3,568 67,136 - - 11 11 294 34 - 328 (1,055 ) - - (1,055 ) 53,518 9,323 3,636 66,477 1,969 69 - 2,038 - - 171 171 (1,170 ) (883 ) - (2,053 ) Unrealized losses on investments, recognized in OCI (2,418 ) - - (2,418 ) - - 297 297 - (112 ) - (112 ) - (8,397 ) - (8,397 ) Balance as of June 30, 2019 51,899 - 4,104 56,003 Accrued interest 1,733 - - 1,733 Purchases - - - - Investment distributions (1,389 ) - - (1,389 ) Unrealized gains on investments, recognized in OCI 918 - - 918 Unrealized losses on investments, recognized in earnings - - (141 ) (141 ) $ 53,161 $ - $ 3,963 $ 57,124 investments,investment, a significant increase (decrease) in the credit factor or the discount rate would result in a significantly lower (higher) fair value measurement or a significant increase (decrease) in the EBITDA multiple would result in a significant higher (lower) fair value measurement. For Level 3 assets measured at fair value on a recurring basis as of September 30, 2019March 31, 2020 and December 31, 20182019, the significant unobservable inputs used in the fair value measurements were as follows: 15.0 % N/A $ 53,161 $ - 0% - 2% (1.9%) N/A 25.0 % N/A 25 CPR N/A 99.0 % N/A 20.0 % N/A $ 3,542 $ - 17.3 % N/A 8.0x N/A $ 421 $ 57 17.5% (N/A) 17.5% (N/A) $ 46,220 $ 57,856 Default rate 2.0%-4.0% (2.8%) 2.0% (N/A) Severity rate 30.0% (N/A) 25.0% (N/A) Prepayment rate 10.0%-25.0% (15.0%) 25.0% (N/A) 98.0%-99.0% (98.7%) 98.0%-99.0% (98.7%) 20% (N/A) 20% (N/A) $ 2,861 $ 3,550 16.5% (N/A) 17.7% (N/A) The Company determined the fair value of loans collateralizing ABS issued and loans held for investment identified as Level 2 assets primarily using the average market bid and ask quotation obtained from a loan pricing service. The valuations are received from a pricing service to which the Company subscribes. The pricing service's analysis incorporates comparable loans traded in the marketplace, the obligors industry, future business prospects, capital structure, and expected credit losses. Significant declines in the performance of the obligor would result in decrease to the fair value measurement. The fair value of loans held for investment identified as Level 3 assets are determined using the discounted cash flow model using the treasury rate, loan interest rate, and an internally generated risk rate.The Company determined the fair value of ABS issued based upon pricing from published market research for equivalent-rated CLO notes. Based on the fair value methodology, the Company has identified the asset-backed securities issued as Level 2 liabilities.September 30, 2019March 31, 2020 and December 31, 20182019, $10.2 million and $9.410.3 million of assets were measured using the net asset value as a practical expedient. Investments for which fair value was estimated using net asset value as a practical expedient were as follows: Redemption Notice Redemption Notice September 30, December 31, September 30, December 31, Redemption Notice Redemption Notice March 31, December 31, March 31, December 31, N/A $ 4,946 $ 3,920 $ 1,176 $ 68 N/A $ 4,990 $ 5,062 $ 2,084 $ 2,123 N/A $ 5,282 $ 5,503 $ 1,677 $ 1,945 N/A $ 5,211 $ 5,188 $ 1,677 $ 1,677 Non-recurringNon-recurring Fair Value Measurementsassetsassets that are measured at fair value on a non-recurring basis result from the application of lower of cost or market accounting or write-downs of individual assets. The Company held loansa loan measured at fair value on a non-recurring basis of $0.6 million and $1.3$2.4 million as of September 30, 2019March 31, 2020 and December 31, 2018, respectively.The Company had marketable securities that were measured at fair value on a non-recurring basis as the Company has the intent and ability to hold these securities until maturity. The Company held marketable securities measured at fair-value on a non-recurring basis of $12.8 million as of September 30, 2019.2019.InvestmentAvailable-for-Sale SecuritiesDebt SecuritiesSeptember 30, 2019:March 31, 2020 and December 31, 2019: $ 28,294 $ - $ (2,091 ) $ 26,203 $ - 1 27,422 - $ (464 ) 26,958 - 1 $ 55,716 $ - $ (2,555 ) $ 53,161 $ - The following table summarizes the held-to-maturity securities in an unrealized position as of September 30, 2019: $ 12,816 $ - $ (700 ) $ 12,116 1 $ 12,816 $ - $ (700 ) $ 12,116 $ 50,990 $ - $ (4,770 ) $ 46,220 3 $ 64,377 $ - $ (6,521 ) $ 57,856 3 and held-to-maturity securities by contractual maturity as of September 30, 2019:March 31, 2020 and December 31, 2019: $ 28,294 26,203 12,816 12,116 $ 30,262 26,882 $ 38,451 33,877 27,422 26,958 - - 20,728 19,338 25,926 23,979 $ 55,716 $ 53,161 $ 12,816 $ 12,116 $ 50,990 $ 46,220 $ 64,377 $ 57,856 The following table summarizes the fair value and gross unrealized losses aggregated by category and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2019: $ 12,116 $ (700 ) $ - $ - $ 12,116 $ (700 ) 26,203 (2,091 ) - - 26,203 (2,091 ) 26,958 (464 ) - - 26,958 (464 ) $ 65,277 $ (3,255 ) $ - $ - $ 65,277 $ (3,255 ) (1)For all CLO debt securities, the gross unrealized loss is measured since the date of deconsolidation, which was January 17, 2019 for CLO III and March 19, 2019 for CLO IV and CLO V.September 30,March 31, 2020 and 2019 and 2018, the Company recognized unrealized gains on CLO debt securities of $0.9 million and zero, respectively. During the nine months ended September 30, 2019 and 2018, the Company recognized unrealizedimpairment losses on CLO debt securities of $2.6$13.5 million and zero, respectively.Equity SecuritiesThe Company has equity securities with quoted prices in active markets as well as equity securities without readily determinable fair market values. Equity securities without readily determinable fair market values are valued at cost, less any impairment, plus or minus changes inrespectively, due to the fair value resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The Company's carrying value of thesedebt securities was $15.3 million and $0.8 million as of September 31, 2019 and December 31, 2018, respectively. Since obtaining ownership of these securitiesbeing less than the Company has recognized $0.2 million of impairment, but no other upward or downward adjustments to the carrying value. The Company has not recognized any impairment or upward or downward adjustments during the three-months or nine-months ended September 31, 2019 and 2018.amortized cost. ABSAsset-Backed Securities issued (through March 2019)September 30,March 31, 2019, the Company deconsolidated its investments in the CLOs and as a result, no longer has loans collateralizing ABS on its Consolidated Statements of Financial Condition as of September 30,March 31, 2019. See Note 1 for additional information on deconsolidation. A summary of the activity in the allowance for loan losses for the three and nine months ended September 30,March 31, 2019and 2018 is as follows: $ - $ - $ (110 ) $ (6,861 ) $ (836 ) $ (9,751 ) $ (390 ) $ (6,533 ) $ (836 ) $ (9,751 ) - - (558 ) - - - (1,366 ) - - - - - - (747 ) - - - (1,075 ) - - - - 110 - 181 - 1,198 - 181 - Transfer from loans held for investment - - - (1,746 ) - - - - - - - - 655 9,751 - (1,746 ) 655 9,751 $ - $ - $ (558 ) $ (9,354 ) $ - $ - $ (558 ) $ (9,354 ) $ - $ - As of December 31, 2018, $1.8 million of the recorded investment amount in loans collateralizing ABS issued were individually evaluated for impairment. The remaining $1,170.2 million of recorded investment amount of loans collateralizing ABS issued were collectively evaluated for impairment as of December 31, 2018.As ofDecember 31, 2018the Company classified all its loans as Cash Flow loans, as their funding decisions were all primarily driven by the cash flows of the borrower. The table below presents certain information pertaining to the loans on non-accrual status at December 31, 2018: Unpaid Principal Balance Interest Income Recognized $ 1,813 $ 1,951 $ 838 $ 1,817 $ 119 - - - - - $ 1,813 $ 1,951 $ 838 $ 1,817 $ 119 Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. No loans were past due at September 30, 2019 or December 31, 2018. The Company had one troubled debt restructuring during the nine months ended September 30, 2019. The loan, with a principal balance and a carrying balance of $0.5 million and $0.2 million in total, respectively, was converted to equity. The Company valued the equity at $0.2 million in total upon conversion and recorded no material gain or loss upon the execution of the restructuring. During the three and nine months ended September 30, 2018, the Company had two loans, which were modified in a troubled debt restructuring. The loans, with a principal balance and a carrying balance of $1.9 million and $1.0 million in total, respectively, were converted to equity. The Company valued the equity at $0.8 million in total upon conversion and incurred a loss of $0.1 million in relation to the restructuring as of December 31, 2018. The Company’s management, at least on a quarterly basis, reviews each loan and evaluates the credit quality of the loan. The review primarily includes the following credit quality indicators with regard to each loan: 1) Moody’s rating, 2) current internal rating, 3) the trading price of the loan and 4) performance of the obligor. The tables below present, by credit quality indicator, the Company’s recorded investment in loans collateralizing asset-backed securities issued at December 31, 2018. These loans were deconsolidated as of September 30, 2019 as part of the deconsolidation of the CLOs. See Note 1 for additional information. $ - $ 7,300 - 247,686 - 856,204 - 59,046 - 1,813 $ - $ 1,172,049 2 $ - $ 1,018,261 3 - 132,169 4 - 19,806 5 - 1,813 $ - $ 1,172,049 $ - $ 1,170,236 - 1,813 $ - $ 1,172,049 (1)Loans with an internal rating of 3 or below are reviewed individually to identify loans to be designated for non-accrual status.Loans Held for InvestmentAs of September 30, 2019 and December 31, 2018, the number of loans held for investment outside of the CLO warehouse portfolio was six and five, respectively. The Company reviews the credit quality of these loans within this portfolio segment on a loan by loan basis mainly focusing on the borrower’s financial position and results of operations as well as the current and expected future cash flows on the loans. As of December 31, 2018, the Company held $26.0 million of loans held for investment in the CLO VI warehouse portfolio. The credit quality of the CLO VI warehouse loans are evaluated in the same manner as the credit quality of loans collateralizing ABS issued. On March 19, 2019, the Company deconsolidated its investments in the CLO VI warehouse and a result, no longer has loans held for investment related to CLO VI on its Consolidated Statements of Financial Condition as of September 30, 2019. See Note 1 for additional information on the deconsolidation.September 30, 2019 and 2018.December 31, 2019. There was no loan losses during the three months ended March 31, 2020. A summary of the activity in loan losses for the three and nine months ended September 30,March 31, 2019 and 2018 is as follows: $ - $ - $ - $ (1,746 ) $ (218 ) $ (181 ) $ (2,279 ) $ (494 ) $ (218 ) $ (181 ) (438 ) - (149 ) - (438 ) - (353 ) - - - - - - - - - - (1,278 ) - - - - - - 218 - 2,483 26 218 - Transfer from loans collateralizing asset-backed securities - - - 1,746 - - - 1,746 - - - - - 181 - - - 181 $ (438 ) $ - $ (149 ) $ - $ (438 ) $ - $ (149 ) $ - $ - $ - A loan is considered to be impaired when, based on current information, it is probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the original loan agreement, including scheduled principal and interest payments. As of September 30, 2019 and December 31, 2018, $1.0 million and $0.5 million of recorded investment amount of loans issued were individually evaluated for impairment, respectively. During the three months ended September 30, 2019, the Company recorded $0.4 million of impairment on the $1.0 million loans evaluated for impairment.The Company had one troubled debt restructuring during the nine months ended September 30, 2019. The loan, with a principal balance and a carrying balance of $0.5 million and $0.2 million in total, respectively, was converted to equity. The Company valued the equity at $0.2 million in total upon conversion and recorded no material gain or loss upon the execution of the restructuring.During the three and nine months ended September 30, 2018, the Company had two loans, which were modified in a troubled debt restructuring. The two loans were held under the same borrower. The loans, with a principal balance and a carrying balance of $1.9 million and $1.0 million in total, respectively, were converted to equity. The Company valued the equity at $0.8 million in total upon conversion and incurred a loss of $0.1 million in relation to the restructuring as of September 30, 2018. As of September 30, 2019 and December 31, 2018, the Company classified all its loans held for investment as Cash Flow loans, as their funding decisions were all primarily driven by the cash flows of the borrower. The table below presents certain information pertaining to the loans on non-accrual status as of September 30, 2019 and December 31, 2018, respectively: $ 1,013 $ 1,078 $ 438 $ 924 $ 86 - - - - - $ 1,013 $ 1,078 $ 438 $ 924 $ 86 Interest Income Recognized $ 462 $ 484 $ 219 $ 462 $ 34 - - - - - $ 462 $ 484 $ 219 $ 462 $ 34 The Company's management, at least on a quarterly basis, reviews each loan and evaluates the credit quality of the loan. The review primarily includes the following credit quality indicators with regard to each loan: 1) Moody's rating, 2) current internal rating (through March 19, 2019) 3) trading price of the loan, and 4) performance of the obligor. The table below presents, by credit quality indicator, the Company's recorded investment in loans held for investment at September 30, 2019 and December 31, 2018: $ - $ - - 7,459 - 18,342 1,013 419 - 463 4,203 3,326 $ 5,216 $ 30,009 2 $ - $ 26,208 3 - 909 4 - - 5 - 462 5,216 2,430 $ 5,216 $ 30,009 $ 4,203 $ 29,547 1,013 462 $ 5,216 $ 30,009 (1) Loans with an internal rating of 4 or below are reviewed individually to identify loans to be designated for non-accrual status. $ - $ 36,000 50,000 50,000 $ 50,000 $ 50,000 6.875% Senior Notes due 2029 36,000 - 36,000 36,000 $ 86,000 $ 86,000 $ 86,000 $ 86,000 (3,521 ) (2,428 ) (3,229 ) (3,416 ) (52 ) (75 ) (2,135 ) - $ 82,427 $ 83,497 $ 80,636 $ 82,584 "2019“2019 Senior Notes"Notes”). The 2019 Senior Notes will mature on September 30, 2029, may be redeemable in whole or in part at any time or from time to time at JMP Group LLC’s option on or after September 30, 2021, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The notes bear interest at a rate of 6.875% per year, payable quarterly on March 30, June 30, September 30, and December 30 of each year, and commencing on December 30, 2019.'s’s intention to redeem the JMP Group Inc. outstanding $25.0 million principal amount of 8.00% senior notes (the "2013“2013 Senior Notes"Notes”) on October 28, 2019. The Company opted to pay the principal and contractually owed interest to the trustee, U.S. Bank National Association, in order to satisfy and discharge the debt as of September 27, 2019. On September 27, 2019, the Company deposited sufficient funds with the trustee to satisfy and discharge the 2013 Senior Notes and the trustee acknowledged such satisfaction and discharge. In connection with the redemption, the Company recorded losses on early retirement of debt related to unamortized bond issuance costs of $0.5 million and recognized an additional $0.2 million of interest expense on the accelerated repayment during the quarteryear ended September 30,December 31, 2019. On July 18, 2019, JMP Group Inc. redeemed $11.0 million principal amount of its issued and outstanding 2013 Senior Notes due 2023. The redemption price was $25 per unit plus accrued and unpaid interest."2017“2017 Senior Notes"Notes”) and the 2019 Senior Notes (collectively with the 2017 Senior Notes the "Senior Notes"“Senior Notes”) were issued by JMP Group Inc. and JMP Group LLC, respectively, pursuant to indentures with U.S. Bank National Association, as trustee. The Senior Notes indentures contain customary event of default and cure provisions. If an uncured default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the Senior Notes may declare the Senior Notes immediately due and payable. The Senior Notes are JMP Group Inc.’s and JMP Group LLC's general unsecured senior obligations, and rank equally with all existing and future senior unsecured indebtedness and are senior to any other indebtedness expressly made subordinate to the notes. At both September 30, 2019March 31, 2020 and December 31, 20182019, the Company was in compliance with the debt covenants in the indentures. September 30, 2019March 31, 2020 were as follows: $ - - $ - - - - - - - - 86,000 86,000 $ 86,000 $ 86,000 $ - $ 22,500 14,983 - 5,983 $ 5,983 - - 829 829 829 829 $ 15,812 $ 23,329 $ 6,812 $ 6,812 Company'sCompany’s Credit Agreement (the "Credit Agreement"“Credit Agreement”) dated as of April 30, 2014, was entered by and between JMP Holding LLC ("(“JMP Holding"Holding”) and City National Bank ("CNB"(“CNB”). The Credit Agreement contains financial and other covenants, including, but not limited to, limitations on debt, liens and investments, as well as the maintenance of certain financial covenants. A violation of any one of these covenants could result in a default under the Credit Agreement, which would permit CNB to terminate the Company’s note and require the immediate repayment of any outstanding principal and interest. The Credit Agreement has been amended throughout its life to make various updates, clarifications and conforming changes to reflect the corporate structure and business changes of the Company since the Credit Agreements execution. The Credit Agreement provides a $25.0 million revolving line of credit (the “Revolver”) through December 31, 2020. On such date, if the revolving period has not been previously extended, any outstanding amounts under the Revolver would convert to a term loan (the “Converted Term Loan”). The Converted Term Loan must be repaid in 12 quarterly installments commencing on January 1, 2021, with each of the first six installments being equal to 3.75% of the principal amount of the Converted Term Loan and each of the next six installments being equal to 5.0% of the principal amount of the Converted Term Loan. A final payment of all remaining principal and interest due under the Converted Term Loan must be made at the earlier of: (a) December 31, 2023; or (b) if certain liquidity requirements are not satisfied by the Company, the date that is last day of the fiscal quarter ending most recently (but no less than 60 days) prior to the earliest maturity date of any senior unsecured notes issued by JMP Group Inc. or JMP Group LLC then outstanding. The Revolver bears interest at a rate of LIBOR plus 225 bps and the Company’s outstanding balance on the Credit Agreement was $15.0$6.0 million and zero as of September 30, 2019March 31, 2020 and December 30, 2018,2019, respectively. As of September 30, 2019,March 31, 2020, the Company had letters of credit outstanding under the Revolver supporting office lease obligations of approximately $1.1 million in the aggregate.out noteour Revolver or Converted Term Loan and require the immediate repayment of any outstanding principal and interest. In addition, our subsidiaries are restricted under the Credit Agreement under certain circumstances from making distributions to us if an event of default has occurred under the Credit Agreement. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, we were in compliance with the loan covenants.SubordinateSubordination Agreement, JMP Securities holds a $20.0 million revolving line of credit with CNB to be used for regulatory capital purposes during its securities underwriting activities. The unused portion of the line accrued an unused fee at the rate of 0.25% per annum, payable monthly. On June 6, 2020, any outstanding amount under the line will convert to a term loan maturing the following year. There was no borrowing on this line of credit as of September 30, 2019March 31, 2020 or December 31, 2018.2019. The line of credit bears interest at a rate to be agreed upon at the time of advance between the Company and CNB.The net loans collateralizing the CLO VI warehouse facility were zero and $26.0 million as of September 30, 2019 and December 31, 2018, respectively. As of December 31, 2018, the CLO VI warehouse facility has a market standard advance rate and the outstanding balances bear interest at LIBOR plus 1.250% until October 11, 2021, which marks the end of the revolving period on the facility. The facility has a 12 months amortization period after the revolving period in which the outstanding balances bear standard market interest rate based on LIBOR. During the nine months ended September 30, 2019, the Company deconsolidated its investments in the CLO VI warehouse and as a result, no longer has the CLO VI warehouse credit facility on its Consolidated Statements of Financial Condition as of September 30, 2019. See Note 1 for additional information on deconsolidation. On January 9, 2018, an affiliate purchased a $0.8 million note from the Company. The note bears interest at a rate of 12.5% per annum and matures November 20, 2022. As of September 30, 2019, the carrying value of the note payable was $0.8 million.Asset-backed Securities IssuedOther Assets and Other Liabilities The table below sets forth the outstanding debt obligations of CLO III, CLO IV,At March 31, 2020 and CLO V as of December 31, 2018:2019, other assets and other liabilities consisted of the following: Outstanding Principal Balance Interest Rate Spread to LIBOR Weighted Average Remaining Maturity (years) $ 769,750 0.85%-1.37% 10.04 143,700 1.30%-1.90% 10.04 71,500 1.80%-2.65% 9.99 68,350 2.60%-4.15% 10.01 60,800 5.70%-6.80% 10.03 $ 1,114,100 7,221 6.90 % 11.00 (8,979 ) $ 1,112,342 $ 4,361 $ 7,053 12,469 5,152 21,684 21,406 2,412 2,412 269 230 $ 41,195 $ 36,253 The secured notessubordinated notes are limited recourse obligations payable solely from cash flows of the CLOs loan portfolios and related collection and payment accounts pledged as security. Payment on Class A notes rank senior in right of payment to the other secured notes and the subordinated notes. Payment on the Class B, Class C, Class D and Class E notes generally rank subordinate in right of payment to any other class of notes which has an earlier alphabetical designation. Payment of interest on the Class C, Class D, Class E, and senior subordinated notes is payable only to the extent proceeds are available under the applicable payment priority provisions. To the extent proceeds are not available, interest on the Class C, Class D, Class E, and senior subordinated notes will be deferred. The secured notes are secured by the CLOs loan portfolio and the funds on deposit in various related collection and payment accounts. The terms of the debt securitization subject the loanshave been included in other assets in the CLOs loan portfolio to a numberConsolidated Statement of collateral quality, portfolio profile, interest coverage and overcollateralization tests. The subordinated notes are subordinated in right of payment to all other classes of notes and are unsecured.Financial Condition.During the nine months ended September 30, 2019, the Company deconsolidated CLO III, CLO IV, and CLO V, and as a result, no longer carried the ABS issued on its Consolidated Statements of Financial Condition as of September 30, 2019. See Note 1 for additional information on deconsolidation. The net loans collateralizing asset-backed securities for CLO III, CLO IV, and CLO V was $1,161.5 million as ofDecember 31, 2018. $ 6,408 $ 5,015 2,897 2,517 8,118 8,645 340 3,301 $ 17,763 $ 19,478 2026. All of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s Consolidated Statements of Financial Condition.2025. With the adoption of ASU 2016-02, Leases (Topic 842)on January 1, 2020, operating lease agreements are required to be recognized on the Consolidated Statements of Financial Condition as a "right-of-use" (“ROU”) asset and a corresponding lease liability. September 30, 2019March 31, 2020 5.545.07 6.126.13% Georgia (through March 19, 2019), Massachusetts, Minnesota, Florida, and New York under various operating leases. Occupancy expense were both $1.2$1.2 million and $1.4 million for the quarters ended September 30,March 31, 2020 and 2019and 2018, respectively. Occupancy expense was $4.0 million and $3.4 million for the nine months ended September 30, 2019and 2018, respectively.(In thousands) Minimum Future Lease Payments Minimum Future Lease Payments $ 1,416 5,629 $ 4,249 5,693 5,758 5,649 5,714 5,643 5,710 2024 4,225 6,562 2,458 30,592 28,114 (4,447 ) (3,755 ) $ 26,145 $ 24,359 $ 4,081 $ 1,652 $ 4,081 $ 1,652 Share Repurchase ProgramOn February 17, 2017, our board of directors authorized the repurchase of up to 1,000,000 shares through December 31, 2018. On December 3, 2018, with the previous authorization expired, our board of directors approved the extension of the term of the Company's share repurchase program through April 30, 2019. On April 22, 2019 the Company's board of directors approved the extension of the term of the Company's share repurchase program through June 30, 2019. During the three months ended September 30, 2019, the Company repurchased zero of the Company’s shares. During the nine months ended September 30, 2019, the Company repurchased 318,826 of the Company’s shares, at an average price of $4.09 per share, for an aggregate purchase price of $1.3 million on the open market. The Company terminated its repurchase program effective May 8, 2019, prior to the launch of a self-tender offer.OfferOffers"Tender Offer"“2019 Tender Offer”) to repurchase for cash up to 3,000,000 shares representing limited liability interests of the Company, or approximately 14.2% of the Company'sCompany’s outstanding common shares. The 2019 Tender Offer expired on June 13, 2019. The 2019 Tender Offer resulted in the Company'sCompany’s repurchase of 1,816,732 shares at a purchase price of $3.95 per share for a total purchase price of $7.2 million, excluding fees and expenses related to the 2019 Tender Offer.table summarizestables summarize the unrealized gains and losses on available-for-sale securities ofincluded in accumulated other comprehensive losses,income (losses), before tax, tax effect, and net of tax, for the three and nine months ended September 30, 2019:March 31, 2020 and 2019: $ - $ - $ - (1,055 ) 273 (782 ) (1,055 ) 273 (782 ) (2,418 ) 631 (1,787 ) Balance as of June 30, 2019 (3,473 ) 904 (2,569 ) Net unrealized gains during the period 918 (209 ) 709 $ (2,555 ) $ 695 $ (1,860 ) $ (6,521 ) $ 1,752 $ (4,769 ) (11,772 ) 3,163 (8,609 ) Reclassification adjustment for losses on available-for-sale securities 13,523 (3,633 ) 9,890 $ (4,770 ) $ 1,282 $ (3,488 ) $ - $ - $ - (1,055 ) 273 (782 ) $ (1,055 ) $ 273 $ (782 ) ninethree months ended September 30, 2019March 31, 2020: 1,300,000 $ 6.85 - $ - Granted 2,400,000 3.04 Forfeited (200,000 ) 3.04 1,300,000 $ 6.85 2,200,000 $ 3.04 1,300,000 $ 6.85 - $ - September 30, 2019March 31, 2020: 1,300,000 0.25 $ 6.85 $ - 1,300,000 0.25 $ 6.85 $ - 2,200,000 4.85 $ 3.04 $ - - - $ - $ -
The Company recognizes share-based compensation expense for share options over the vesting period using the accelerated attribution method when they are subject to graded vesting and on a straight-line basis when they are subject to cliff vesting. The Company recognized compensation expense related to share options of zero for both the three and nine months ended September 30, 2019and 2018, respectively. September 30, 2019March 31, 2020, there was no$1.3 million in unrecognized compensation expense related to share options.There were no share options exercised during both the three and nine months ended September 30, 2019 and September 30, 2018. As a result, the Company did not recognize any current income tax benefits from the exercise of share options.
On February 6, 2019 the Company granted approximately 280,000 RSUs to certain employees of the Company as part of the 2018 deferred compensation program. 50% of these units will vest on December 1, 2019 and the remaining 50% will vest on December 1, 2020, subject to the grantees’ continued employment through such dates. The Company also granted RSUs for new hires throughout the year which have various vesting schedules.
Nine Months Ended | Three Months Ended | |||||||||||||||
September 30, 2019 | March 31, 2020 | |||||||||||||||
Restricted Share Units | Weighted Average Grant Date Fair Value | Restricted Share Units | Weighted Average Grant Date Fair Value | |||||||||||||
Balance, beginning of year | 297,639 | $ | 4.79 | 387,006 | $ | 3.97 | ||||||||||
Granted | 572,695 | 4.06 | 198,682 | 2.99 | ||||||||||||
Vested | (183,997 | ) | 4.49 | (44,179 | ) | 3.80 | ||||||||||
Forfeited | (3,894 | ) | 4.43 | |||||||||||||
Balance, end of period | 686,337 | $ | 4.26 | 537,615 | $ | 3.62 |
The aggregate fair value of RSUs vested during both the three months ended September 30, 2019and 2018 were $86 thousand and $91 thousand, respectively. The aggregate fair value of RSUs vested during both the nine months ended September 30, 2019and 2018 were $826 thousand and $399 thousand, respectively. The income tax benefits realized from the vested RSUs were $31 thousand and zero for the three months ended September 30, 2019and 2018, respectively. The income tax benefits realized from the vested RSUs were $210 thousand and $28 thousand for the nine months ended September 30, 2019and 2018, respectively.
The Company recognizes compensation expense for RSUs over the vesting period using the accelerated attribution method when they are subject to graded vesting and on a straight-line basis when they are subject to cliff vesting. For both three months ended September 30, 2019and 2018, the Company recorded compensation expenses related to RSU's of $0.5 million. For the nine months ended September 30, 2019and 2018, the Company recorded compensation expenses related to RSU's of $1.6 million and $1.3 million, respectively.
For the three months ended September 30, 2019 and 2018, the Company recognized income tax benefits of $157 thousand and $101 thousand, respectively, related to the compensation expense recognized for RSUs. For the nine months ended September 30, 2019 and 2018, the Company recognized income tax benefits of $432 thousand and $215 thousand, respectively, related to the compensation expense recognized for RSUs. As of September 30, 2019March 31, 2020, there was $1.3$1.1 million of unrecognized compensation expense related to RSUs expected to be recognized over a weighted average period of 1.49 years1.42 years.
The Company pays cash distribution equivalents on certain RSUs upon vesting. Distribution equivalents paid on RSUs are generally charged to retained earnings. The Company accounts for the tax benefit related to distribution equivalents paid on RSUs as an increase in additional paid-in capital.
Share Appreciation Rights
In February 2015, the Company granted an aggregate of 2,865,000 share appreciation rights (“SARs”) to certain employees and the Company’s independent directors. These SARs have a base price of $7.33 per share, an exercise period of five years and have vested and became exercisable on December 31,2017 subject to the terms and conditions of the applicable grant agreements. The fair value of the SARs was determined using a quantitative model, using the following assumptions: expected life of 2.0 years, risk-free interest rate of 2.09%, distribution yield of 19.47%, and volatility of 20.00%. The risk-free rate was interpolated from the U.S. constant maturity treasuries for a term corresponding to the maturity of the SAR. The volatility was calculated from the historical weekly share prices of the Company as of the grant date for a term corresponding to the maturity of the SAR. The distribution yield was calculated as the sum of the last twelve-month distributions over the share price as of the grant date.
The following table summarizes the SARs activity for the nine months ended September 30, 2019
Nine Months Ended | ||||||||
September 30, 2019 | ||||||||
Share Appreciation Rights | Weighted Average Exercise Price | |||||||
Balance, beginning of year | 2,485,000 | $ | 7.33 | |||||
Balance, end of period | 2,485,000 | $ | 7.33 |
The following table summarizes the share options outstanding as well as share options vested and exercisable as of September 30, 2019:
September 30, 2019 | ||||||||||||||||||
SARs Outstanding | ||||||||||||||||||
Weighted | ||||||||||||||||||
Average | Weighted | |||||||||||||||||
Remaining | Average | Aggregate | ||||||||||||||||
Exercise | Number | Contractual | Exercise | Intrinsic | ||||||||||||||
Price | Outstanding | Life in Years | Price | Value | ||||||||||||||
$ | 7.33 | 2,485,000 | 0.25 | $ | 7.33 | $ | - |
The Company recognizes compensation expense for SARs over the vesting period, through monthly mark to market of adjustments to the liability award. For the three months ended September 30, 2019and 2018, the Company recorded compensation benefit of zero and $50 thousand, respectively. For the nine months ended September 30, 2019and 2018, the Company recorded compensation benefit of zero and $149 thousand, respectively.
For the three months ended September 30, 2019and 2018, the Company recognized income tax benefit of zero and $13 thousand related to the compensation expense recognized for SARs. For the nine months ended September 30, 2019and 2018, the Company recognized income tax benefit of zero and $39 thousand related to the compensation expense recognized for SARs. As of September 30, 2019, there was no unrecognized compensation expense related to SARs.
13. Net Income per Common Share
Basic net income (loss) per share for the Company is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the reporting period. Diluted net income (loss) per share is calculated by adjusting the weighted average number of outstanding shares to reflect the potential dilutive impact as if all potentially dilutive share options or RSUs were exercised or converted under the treasury share method. However, for periods that the Company has a net loss, the effect of outstanding share options or RSUs is anti-dilutive and, accordingly, is excluded from the calculation of diluted loss per share.
The computations of basic and diluted net income per share for the three and nine months ended September 30,March 31, 2020 and 2019and 2018 are shown in the tables below:
(In thousands, except per share data) | Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net income (loss) attributable to JMP Group LLC | $ | (4,061 | ) | $ | 288 | $ | (104 | ) | $ | (1,983 | ) | $ | (11,748 | ) | $ | 5,069 | ||||||||
Denominator: | ||||||||||||||||||||||||
Basic weighted average shares outstanding | 19,324 | 21,435 | 20,454 | 21,545 | 19,532 | 21,288 | ||||||||||||||||||
Effect of potential dilutive securities: | ||||||||||||||||||||||||
Restricted share units | - | 302 | - | - | - | 141 | ||||||||||||||||||
Diluted weighted average shares outstanding | 19,324 | 21,737 | 20,454 | 21,545 | 19,532 | 21,429 | ||||||||||||||||||
Net income (loss) per share | ||||||||||||||||||||||||
Basic | $ | (0.21 | ) | $ | 0.01 | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.60 | ) | $ | 0.24 | ||||||||
Diluted | $ | (0.21 | ) | $ | 0.01 | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.60 | ) | $ | 0.24 |
Due to the net loss for three and nine months ended September 30, 2019, and the nine months ended September 30, 2018,March 31, 2020, all of the share options and restricted share units outstanding, were anti-dilutive and, therefore, were not included in the computation of diluted weighted-average common shares outstanding.
14. ASC 606 Revenue from contracts with customers
The following tables represent the Company'sCompany’s total revenues from contracts with customers, disaggregated by major business activity, for the three and nine months ended September 30, 2019March 31, 2020 and September 30, 2018March 31, 2019, respectively.
(in thousands) | Three Months Ended September 30, 2019 | Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Broker -Dealer | Asset Management | Total Asset Management | Corporate Costs | Eliminations | Total | Broker -Dealer | Asset Management | Total Asset Management | Corporate Costs | Eliminations | Total | |||||||||||||||||||||||||||||||||||||||||||||
Asset Management Fee Income | Investment Income | Asset Management Fee Income | Investment Income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total revenues from contracts with customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity and debt origination | $ | 8,561 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 8,561 | $ | 8,556 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 8,556 | ||||||||||||||||||||||||||||
Strategic advisory and private placements | 6,667 | - | - | - | - | - | 6,667 | 6,069 | - | - | - | - | - | 6,069 | ||||||||||||||||||||||||||||||||||||||||||
Total investment banking revenues | 15,228 | - | - | - | - | - | 15,228 | 14,625 | - | - | - | - | - | 14,625 | ||||||||||||||||||||||||||||||||||||||||||
Commissions | 2,900 | - | - | - | - | - | 2,900 | 3,718 | - | - | - | - | - | 3,718 | ||||||||||||||||||||||||||||||||||||||||||
Research payments | 1,152 | - | - | - | - | - | 1,152 | 1,241 | - | - | - | - | - | 1,241 | ||||||||||||||||||||||||||||||||||||||||||
Net trading losses | (84 | ) | - | - | - | - | - | (84 | ) | (772 | ) | - | - | - | - | - | (772 | ) | ||||||||||||||||||||||||||||||||||||||
Total brokerage revenues | 3,968 | - | - | - | - | - | 3,968 | 4,187 | - | - | - | - | - | 4,187 | ||||||||||||||||||||||||||||||||||||||||||
Base management fees | - | 1,597 | - | 1,597 | - | (25 | ) | 1,572 | - | 1,727 | - | 1,727 | - | (25 | ) | 1,702 | ||||||||||||||||||||||||||||||||||||||||
Incentive management fees | - | 59 | - | 59 | - | (3 | ) | 56 | - | 275 | (261 | ) | 14 | - | - | 14 | ||||||||||||||||||||||||||||||||||||||||
Total asset management fees | - | 1,656 | - | 1,656 | - | (28 | ) | 1,628 | - | 2,002 | (261 | ) | 1,741 | - | (25 | ) | 1,716 | |||||||||||||||||||||||||||||||||||||||
Total revenues from contracts with customers | $ | 19,196 | $ | 1,656 | $ | - | $ | 1,656 | $ | - | $ | (28 | ) | $ | 20,824 | $ | 18,812 | $ | 2,002 | $ | (261 | ) | $ | 1,741 | $ | - | $ | (25 | ) | $ | 20,528 |
(in thousands) | Three Months Ended September 30, 2018 | |||||||||||||||||||||||||||
Broker -Dealer | Asset Management | Total Asset Management | Corporate Costs | Eliminations | Total | |||||||||||||||||||||||
Asset Management Fee Income | Investment Income | |||||||||||||||||||||||||||
Total revenues from contracts with customers | ||||||||||||||||||||||||||||
Equity and debt origination | $ | 11,366 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 11,366 | ||||||||||||||
Strategic advisory and private placements | 9,729 | - | - | - | - | - | 9,729 | |||||||||||||||||||||
Total investment banking revenues | 21,095 | - | - | - | - | - | 21,095 | |||||||||||||||||||||
Commissions | 3,251 | - | - | - | - | - | 3,251 | |||||||||||||||||||||
Research payments | 1,525 | - | - | - | - | - | 1,525 | |||||||||||||||||||||
Net trading losses | (100 | ) | - | - | - | - | - | (100 | ) | |||||||||||||||||||
Total brokerage revenues | 4,676 | - | - | - | - | - | 4,676 | |||||||||||||||||||||
Base management fees | - | 4,536 | - | 4,536 | - | (1,337 | ) | 3,199 | ||||||||||||||||||||
Incentive management fees | - | 487 | 16 | 503 | - | - | 503 | |||||||||||||||||||||
Total asset management fees | - | 5,023 | 16 | 5,039 | - | (1,337 | ) | 3,702 | ||||||||||||||||||||
Total revenues from contracts with customers | $ | 25,771 | $ | 5,023 | $ | 16 | $ | 5,039 | $ | - | $ | (1,337 | ) | $ | 29,473 |
(in thousands) | Nine Months Ended September 30, 2019 | Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Broker -Dealer | Asset Management | Total Asset Management | Corporate Costs | Eliminations | Total | Broker -Dealer | Asset Management | Total Asset Management | Corporate Costs | Eliminations | Total | |||||||||||||||||||||||||||||||||||||||||||||
Asset Management Fee Income | Investment Income | Asset Management Fee Income | Investment Income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total revenues from contracts with customers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity and debt origination | $ | 27,678 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 27,678 | $ | 6,789 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 6,789 | ||||||||||||||||||||||||||||
Strategic advisory and private placements | 17,165 | - | - | - | - | - | 17,165 | 5,090 | - | - | - | - | - | 5,090 | ||||||||||||||||||||||||||||||||||||||||||
Total investment banking revenues | 44,843 | - | - | - | - | - | 44,843 | 11,879 | - | - | - | - | - | 11,879 | ||||||||||||||||||||||||||||||||||||||||||
Commissions | 9,262 | - | - | - | - | - | 9,262 | 3,299 | - | - | - | - | - | 3,299 | ||||||||||||||||||||||||||||||||||||||||||
Research payments | 4,016 | - | - | - | - | - | 4,016 | 1,209 | - | - | - | - | - | 1,209 | ||||||||||||||||||||||||||||||||||||||||||
Net trading losses | (118 | ) | - | - | - | - | - | (118 | ) | 27 | - | - | - | - | - | 27 | ||||||||||||||||||||||||||||||||||||||||
Total brokerage revenues | 13,160 | - | - | - | - | - | 13,160 | 4,535 | - | - | - | - | - | 4,535 | ||||||||||||||||||||||||||||||||||||||||||
Base management fees | - | 5,835 | - | 5,835 | - | (1,058 | ) | 4,777 | - | 2,704 | - | 2,704 | - | (1,007 | ) | 1,697 | ||||||||||||||||||||||||||||||||||||||||
Incentive management fees | - | 647 | 261 | 908 | - | - | 908 | - | 6 | - | 6 | - | - | 6 | ||||||||||||||||||||||||||||||||||||||||||
Total asset management fees | - | 6,482 | 261 | 6,743 | - | (1,058 | ) | 5,685 | - | 2,710 | - | 2,710 | - | (1,007 | ) | 1,703 | ||||||||||||||||||||||||||||||||||||||||
Total revenues from contracts with customers | $ | 58,003 | $ | 6,482 | $ | 261 | 6,743 | $ | - | $ | (1,058 | ) | $ | 63,688 | $ | 16,414 | $ | 2,710 | $ | - | $ | 2,710 | $ | - | $ | (1,007 | ) | $ | 18,117 |
(in thousands) | Nine Months Ended September 30, 2018 | |||||||||||||||||||||||||||
Broker -Dealer | Asset Management | Total Asset Management | Corporate Costs | Eliminations | Total | |||||||||||||||||||||||
Asset Management Fee Income | Investment Income | |||||||||||||||||||||||||||
Total revenues from contracts with customers | ||||||||||||||||||||||||||||
Equity and debt origination | $ | 47,277 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 47,277 | ||||||||||||||
Strategic advisory and private placements | 23,042 | - | - | - | - | - | 23,042 | |||||||||||||||||||||
Total investment banking revenues | 70,319 | - | - | - | - | - | 70,319 | |||||||||||||||||||||
Commissions | 11,237 | - | - | - | - | - | 11,237 | |||||||||||||||||||||
Research payments | 4,160 | - | - | - | - | - | 4,160 | |||||||||||||||||||||
Net trading losses | (610 | ) | - | - | - | - | - | (610 | ) | |||||||||||||||||||
Total brokerage revenues | 14,787 | - | - | - | - | - | 14,787 | |||||||||||||||||||||
Base management fees | - | 12,856 | - | 12,856 | - | (3,333 | ) | 9,523 | ||||||||||||||||||||
Incentive management fees | - | 910 | 5,318 | 6,228 | - | (246 | ) | 5,982 | ||||||||||||||||||||
Total asset management fees | - | 13,766 | 5,318 | 19,084 | - | (3,579 | ) | 15,505 | ||||||||||||||||||||
Total revenues from contracts with customers | $ | 85,106 | $ | 13,766 | $ | 5,318 | $ | 19,084 | $ | - | $ | (3,579 | ) | $ | 100,611 |
15. Employee Benefits
All salaried employees of the Company are eligible to participate in the JMP Group 401(k) Plan after three months of employment. Participants may contribute up to the limits set by the U.S. Internal Revenue Service. Effective January 1, 2015, the Company contributes a match of 100% of each participant’s contributions to the JMP Group 401(k) Plan up to a maximum of 3% of the participant’s compensation plus 50% of the participant’s elective deferrals between 3% and 5%. All participants are immediately vested 100% on matched contributions. The Company recorded JMP Group 401(k) Plan matching expense of $0.2 million and $0.3 million for the three months ended September 30, 2019and 2018, respectively. The Company recorded JMP Group 401(k) Plan matching expense of $1.3 million and $1.5 million for the nine months ended September 30, 2019and 2018, respectively.
16.15. Income Taxes
JMP Group LLC’s election to be taxed as a corporation for United States federal income tax purposes was approved by the Internal Revenue Service with an effective date of January 1, 2019. TaxableThe income derived from the investment activities of its previously untaxed pass-through entities will now be taxed at a U.S. federal and state corporate rate, along with the Company’s corporate subsidiaries.
For the three months ended September 30,March 31, 2020 and 2019 and 2018, the Company recorded income tax benefit of $1.2$7.2 million and expense of $0.5$4.1 million, respectively. The effective tax rate is 22.81%benefit rates were 37.95% and 32.17%424.85% for the three months ended September 30,March 31, 2020 and 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded income tax benefit of $5.8 million and $0.1 million, respectively. The effective tax rate is 96.95% and 7.33% for the nine months ended September 30, 2019 and 2018, respectively.
For financial reporting purposes, the Company’s effective tax rate used for the interim periods is based on the estimated full-year income tax rate. The effective tax rate differs from the statutory rate primarily due to the changenet operating loss carryback that was created in prior year which was subsequently carried back to offset years with taxable income that was derived from a different corporate tax status from non-taxablerate.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) was enacted in response to taxablemarket conditions related to the coronavirus (COVID-19) pandemic. The CARES Act includes many measures to help companies, including changes that are temporary and non-income based tax laws, some of which resultedwere part of the Tax Cuts and Jobs Act (TCJA). The Company has made reasonable assessments in recognizingaccounting for certain effects of the initial temporary differences between book bases and tax bases of assets and liabilities.CARES Act that was passed. However, the provisional impacts may be refined over the prescribed measurement period.
The Company recognizes deferred tax assets and liabilities in accordance with ASC 740, Income Taxes, and are determined based upon the temporary differences between the financial reporting and tax basis of the Company’s assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse.
1716. Commitments and Contingencies
In connection with its underwriting activities, JMP Securitiesmay, from time to time, enter into firm commitments for the purchase of securities in return for a fee. These commitments require JMP Securities to purchase securities at a specified price. Securities underwriting exposes JMP Securities to market and credit risk, primarily in the event that, for any reason, securities purchased by JMP Securities cannot be distributed at anticipated price levels. Settlement of transactions relating to such underwriting commitments, which were open at September 30, 2019, had no material effect on the Company's consolidated financial statements. JMP Securities had no open underwriting commitments as ofat both March 31, 2020 and December 31, 20182019.
The marketable securities owned and the restricted cash, as well as the cash held by the clearing brokermay be used to maintain margin requirements. The Company had $0.3 million of cash on deposit with JMP Securities’ clearing broker at both September 30, 2019March 31, 2020 and December 31, 20182019. Furthermore, the marketable securities owned may be hypothecated or borrowed by the clearing broker.
Unfunded commitments are agreements to lend to a borrower, provided that all conditions have been met. The Company had no material unfunded commitments to lend of $0.8 million and $28.7 million as ofat both September 30, 2019March 31, 2020 and December 31, 20182019. Using the average market bid and ask quotation obtained from a loan pricing service, the Company determined the fair value of the unfunded commitments to be $0.8 million and $27.0 million as of September 30, 2019 and December 31, 2018.
1817. Regulatory Requirements
JMP Securities is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. JMP Securities had net capital of $15.8$8.6 million and $29.816.9 million, which were $14.7$1.0 million and $28.715.5 million in excess of the required net capital of $7.6 million and $1.11.4 million at both September 30, 2019March 31, 2020 and December 31, 20182019. respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was1.04 1.23 to 1 and 1.25 0.57to 1 at September 30, 2019March 31, 2020 and December 31, 20182019, respectively.
Since all customer transactions are cleared through another broker-dealer on a fully disclosed basis, JMP Securities is not required to maintain a separate bank account for the exclusive benefit of customers in accordance with Rule 15c3-3 under the Exchange Act.
1918. Related Party Transactions
The Company earns base management fees and incentive fees from serving as investment advisor for various entities, including corporations, partnerships limited liability companies, and offshore investment companies. The Company also owns an investment in some of such affiliated entities. As of September 30, 2019March 31, 2020 and December 31, 20182019, the aggregate fair value of the Company’s investments in the affiliated entities for which the Company serves as the investment advisor was $18.7$13.5 million and $18.617.3 million, respectively, which consisted of investments in hedge and other private funds of $8.8 million and $8.6 million respectively,for both periods and an investment in HCC common stock of $9.94.9 million and $10.08.7 million for the periods, respectively. Base management fees earned from these affiliated entities were $1.6$1.7 million and $3.2 million for both the three months ended September 30,March 31, 2020 and 2019and 2018. Base management fees earned from these affiliated entities were $4.8 million and $9.5 million for the nine months ended September 30, 2019and 2018. Also, the Company earned incentive fees of $0.1 million and $0.5 million, from these affiliated entities for the three months ended September 30, 2019and 2018. The Company earned incentive fees of $0.9 million and $6.0 million, from these affiliated entities for the nine months ended September 30, 2019and 2018. respectively.
On September 19, 2017, the Company made a loan to a registered investment adviser of $3.4 million at an interest rate of 15% per year. In October 2017, the Company sold 30% of the loan, or $1.0 million, to an affiliate. As of bothSeptember 30, 2019March 31, 2020 and December 31, 20182019, the Company’s portion of the outstanding loan balance to this entity was $2.4 million. The Company determined the fair value of loan held for investment to be$2.5million as of September 30, 2019 and $2.3 million as of December 31, 2018, using anticipated cash flows, discounted at an appropriate market credit adjusted interest rate.
On January 9, 2018, an affiliate purchased a $0.8 million note from the Company. As of September 30, 2019March 31, 2020, the carrying value of note payable was $0.8 million.
On January 9, 2018, the Company sold The note bears interest at a 30% subscription into an investment series held by a subsidiary to an affiliate. The transaction resulted in the admissionrate of the affiliate into the limited liability company subsidiary as a non-controlling member. The Company recorded $0.5 million as capital attributable to non-controlling interest upon execution as of December 31, 2018. The Company has allocated income on the investment based on the affiliates' pro-rata share of ownership of the investment series of $12 thousand12.5% per annum and $43 thousand for the three and nine months ended September 30, 2019. The Company has allocated income on the investment based on the affiliates' pro-rata share of ownership of the investment series of $16 thousand and $44 thousand for the three and nine months ended September 30, 2018.matures November 20, 2022.
20.19. Guarantees
JMP Securities has agreed to indemnify its clearing broker for losses that the clearing broker may sustain from the accounts of customers introduced by JMP Securities. Should a customer not fulfill its obligation on a transaction, JMP Securities may be required to buy or sell securities at prevailing market prices in the future on behalf of its customer. JMP Securities’ obligation under the indemnification has no maximum amount. All unsettled trades at September 30, 2019March 31, 2020 and December 31, 20182019 have subsequently settled with no resulting material liability to the Company. For the three and nine months ended September 30,March 31, 2020 and 2019and 2018, the Company had no material loss due to counterparty failure, and hashad no obligations outstanding under the indemnification arrangement as of September 30, 2019March 31, 2020 or December 31, 20182019.
The Company is engaged in various investment banking and brokerage activities whose counterparties primarily include broker-dealers, banks and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. It is the Company’s policy to review, as necessary, the credit standing of each counterparty with which it conducts business.
21.20. Litigation
The Company may be involved from to time in a number of judicial, regulatory, litigation and arbitration matters arising in connection with the business. The outcome of such matters the Company has been and/or currently is involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on the results of operations in any future period and a significant outcome could have a material adverse impact on the Company’s financial condition, results of operations and cash flows.
In December 2019, plaintiffs in a class action lawsuit and the Company, as defendant, entered into an agreement to settle such lawsuit by paying $3.0 million (the “Settlement Amount”) into a settlement fund escrow account following the preliminary approval of such settlement by the court, which approval was granted on March 9, 2020. Concurrently with entering into the settlement agreement, the Company entered into an agreement with a third party indemnifying the Company with respect to such lawsuit whereby such indemnifying party would pay the Settlement Amount into the settlement fund escrow account on behalf of the Company at the time such payment was to come due on March 30, 2020. As of December 31, 2019, the indemnification payment receivable and settlement liability were separately recorded and included in the Consolidated Statements of Financial Condition within other assets and other liabilities. In March 2020, the indemnifying party timely paid the Settlement Amount into the settlement fund escrow account, and as a result, both the indemnification receivable and the settlement liability were removed from the Consolidated Statement of Financial Condition with no impact on the Company’s results of operations or cash flows.
The Company reviews the need for any loss contingency reserves and establishes reserves when, in the opinion of management, it is probable that a matter would result in liability and the amount of loss, if any, can be reasonably estimated. Generally, given the inherent difficulty of predicting the outcome of matters the Company is involved in, particularly cases in which claimants seek substantial or indeterminate damages, it is not possible to determine whether a liability has been incurred or to reasonably estimate the ultimate or minimum amount of that liability until the case is close to resolution. For these matters, no reserve is established until such time, other than for reasonably estimable legal fees and expenses. Management, after consultation with legal counsel, believes that the currently known actions or threats will not result in any material adverse effect on the Company’s financial condition, results of operations or cash flows.
22.21. Financial Instruments with Off-Balance Sheet Risk, Credit Risk or Market Risk
The majority of the Company’sCompany’s transactions, and consequently the concentration of its credit exposure, is with its clearing broker. The Company may enter into margin transactions in its principal trading accounts held at the clearing broker is also a significant source of short-term financing for the Company, which isbroker. Such margin transactions are collateralized by the Company’s cash and securities owned byheld in those accounts. The clearing broker has the Company and held byright to pledge or hypothecate such collateralized assets under the clearing broker. The Company’s securities owned may be pledged by the clearing broker.margin transaction agreement. The receivable from the clearing broker representsincludes commissions receivable related to security transactions of customers and amounts receivable in connection with the trading of proprietary positions.
The Company is also exposed to credit risk from other brokers, dealers and other financial institutions with which it transacts business. In the event that counterpartiesthese other parties do not fulfill their obligations in the course of business dealings, the Company maybe exposed to credit risk.
The Company’sCompany’s trading activities include providing securities brokerage services to institutional clients. To facilitate these customer transactions, the Company purchases proprietary securities positions (“long positions”) in equity securities. The Company also enters into transactions to sell securities not yet purchased (“short positions”), which are recorded as liabilities on the Consolidated Statements of Financial Condition. The Company is exposed to market risk on these long and short securities positions as a result of decreases in market value of long positions and increases in market value of short positions. Short positions create a liability to purchase the security in the market at prevailing prices. Such transactions result in off-balance sheet market risk as the Company’s ultimate obligation to satisfy the sale of securities sold, but not yet purchased, may exceed the amount recorded in the Consolidated Statements of Financial Condition. To mitigate the risk of losses, these securities positions are marked to market daily and are monitored by management to assure compliance with limits established by the Company.
Unfunded commitments are agreements to lend to a borrower, provided that all conditions have been met. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each borrower’s creditworthiness on a case by case basis.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a borrower to a third party. The Company’sCompany’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to borrowers. In connection with the CLOs, the Company had standby letters of credit of zero and $1.4 million as of September 30, 2019 and December 31, 2018, respectively. In addition, the Company had unfunded commitments to lend to a borrower. See Note 1816 for description of the Company'sCompany’s unfunded commitments to lend as of September 30, 2019March 31, 2020 and December 31, 20182019.
23.22. Business Segments
The Company’s business results are categorized into the following four business segments: Broker-Dealer, Asset Management Fee Income, Investment Income, and Corporate costs. The Broker-Dealer segment includes a broad range of services, such as underwriting and acting as a placement agent for public and private capital markets raising transactions and financial advisory services in M&A, restructuring and other strategic transactions. The Broker-Dealer segment also includes institutional brokerage services and equity research services to our institutional investor clients. The Asset Management Fee Income segment includes the management of a broad range of pooled investment vehicles, including the Company’s hedge funds, private equity funds, hedge funds of funds, and collateralized loan obligations.obligations (through March 31, 2019). The Investment income segment includes income from the Company’s principal investments in public and private securities and investment funds managed by HCS, as well as any other net interest and income from investing activities, and interest expense related to the Company's bond issuance. The Corporate Costs segment also includes expenses related to JMP Group LLC, JMP Holding LLC and JMP Group Inc., and is mainly comprised of corporate overhead expenses.
During the year ended 2018, the Company changed its internal reporting which resulted in changes to the Company's segment information. The Company has restated the prior period presented herein to conform to the new presentation.
Management uses operating net income, a Non-GAAP financial measure, as a key metric when evaluating the performance of the Company's core business strategy and ongoing operations. This measure adjusts the Company’s net income as follows: (i) reverses share-based compensation expense recognized under GAAP related to historical equity awards, granted in prior periods, (ii) recognizes 100% of the cost of deferred compensation in the period for which such compensation was awarded, instead of recognizing such cost over the vesting period as required under GAAP, (iii) reverses amortization expense related to an intangible asset resulting from the repurchase of a portion of the equity of CLO III;III prior to March 31, 2019; (iv) unrealized gains or losses on commercial real estate investments, adjusted for non-cash expenditures, including depreciation and amortization; (v) reverses net unrealized gains and losses on strategic equity investments and warrants,warrants; (vi) excludes general loan loss provisions related toreverses the CLOs,impairment of CLO debt securities recognized in principal transactions, (vii) reverses one-time transaction costs related to the refinancing or repurchase of the debt; (viii) one time expense associated with redemptiona combined federal, state and local income tax rate of debt underlying26% at the CLOs, the redemption of other debt, and the resulting acceleration of amortization of remaining capitalized issuance costs for each;consolidated taxable parent company, JMP Group LLC; and (ix) presents revenues and expenses on a basis that deconsolidates the CLOs (through March 31, 2019) and removes any non-controlling interest in consolidated but less than wholly owned subsidiaries. These charges may otherwise obscure the Company’s operating income and complicate an assessment of the Company’s core business activities. The operating pre-tax net income facilitates a meaningful comparison of the Company’s results in a given period to those in prior and future periods.
The Company’s segment information for the three and nine months ended September 30,March 31, 2020 and 2019and 2018 was prepared using the following methodology:
| • |
| Revenues and expenses directly associated with each segment are included in determining segment operating income. |
| • |
| Revenues and expenses not directly associated with a specific segment are allocated based on the most relevant measures applicable, including revenues, headcount and other factors. |
| • |
| Each segment’s operating expenses include: a) compensation and benefits expenses that are incurred directly in support of the segments and b) other operating expenses, which include expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. |
| • |
| Assets directly associated with each segment are allocated to the respective segment. One exception is depreciable assets, which are held at the Corporate segment. The associated depreciation is allocated to the related segment. |
• | Investment Income segment assets are presented net of an intercompany loan. |
Segment Operating Results
Management believes that the following information provides a reasonable representation of each segment’s contribution to revenues, income and assets:
(In thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
Broker-Dealer | ||||||||||||||||||||
Non-interest revenues | $ | 19,202 | $ | 25,777 | $ | 58,021 | $ | 85,121 | ||||||||||||
Total net revenues after provision for loan losses | $ | 19,202 | $ | 25,777 | $ | 58,021 | $ | 85,121 | ||||||||||||
Non-interest expenses | 20,677 | 23,202 | 62,035 | 76,528 | ||||||||||||||||
Segment operating pre-tax net income (loss) | $ | (1,475 | ) | $ | 2,575 | $ | (4,014 | ) | $ | 8,593 | ||||||||||
Segment assets | $ | 49,554 | $ | 68,352 | $ | 49,554 | $ | 68,352 | ||||||||||||
Asset Management Fee Income | ||||||||||||||||||||
Non-interest revenues | $ | 1,795 | $ | 4,878 | $ | 6,692 | $ | 13,439 | ||||||||||||
Total net revenues after provision for loan losses | $ | 1,795 | $ | 4,878 | $ | 6,692 | $ | 13,439 | ||||||||||||
Non-interest expenses | 2,101 | 4,794 | 8,074 | 14,570 | ||||||||||||||||
Segment operating pre-tax net income (loss) | $ | (306 | ) | $ | 84 | $ | (1,382 | ) | $ | (1,131 | ) | |||||||||
Segment assets | $ | 11,889 | $ | 21,033 | $ | 11,889 | $ | 21,033 | ||||||||||||
Investment Income | ||||||||||||||||||||
Non-interest revenues | $ | 1,434 | $ | 237 | $ | 9,309 | $ | 5,961 | ||||||||||||
Net interest income | 563 | 3,715 | 4,702 | 8,769 | ||||||||||||||||
Loss on repurchase, reissuance or early retirement of debt | - | - | - | (42 | ) | |||||||||||||||
Provision for loan losses | (438 | ) | (470 | ) | (438 | ) | (1,400 | ) | ||||||||||||
Total net revenues after provision for loan losses | $ | 1,559 | $ | 3,482 | $ | 13,573 | $ | 13,288 | ||||||||||||
Non-interest expenses | 334 | 1,535 | 3,378 | 9,096 | ||||||||||||||||
Segment operating pre-tax net income | $ | 1,225 | $ | 1,947 | $ | 10,195 | $ | 4,192 | ||||||||||||
Segment assets | $ | 78,910 | 1,270,289 | $ | 78,910 | 1,270,289 | ||||||||||||||
Corporate Costs | ||||||||||||||||||||
Non-interest revenues | $ | 76 | $ | - | $ | 76 | $ | - | ||||||||||||
Total net revenues after provision for loan losses | 76 | - | 76 | - | ||||||||||||||||
Non-interest expenses | 2,172 | 2,688 | 6,214 | 7,519 | ||||||||||||||||
Segment operating pre-tax net loss | $ | (2,096 | ) | $ | (2,688 | ) | $ | (6,138 | ) | $ | (7,519 | ) | ||||||||
Segment assets | $ | 240,718 | $ | 258,217 | $ | 240,718 | $ | 258,217 | ||||||||||||
Eliminations | ||||||||||||||||||||
Non-interest revenues | $ | (47 | ) | $ | (1,205 | ) | $ | (1,095 | ) | $ | (3,352 | ) | ||||||||
Total net revenues after provision for loan losses | $ | (47 | ) | $ | (1,205 | ) | $ | (1,095 | ) | $ | (3,352 | ) | ||||||||
Non-interest expenses | (47 | ) | (1,205 | ) | (1,095 | ) | (3,354 | ) | ||||||||||||
Segment operating pre-tax net income | $ | - | $ | - | $ | - | $ | 2 | ||||||||||||
Segment assets | $ | (147,780 | ) | $ | (254,326 | ) | $ | (147,780 | ) | $ | (254,326 | ) | ||||||||
Consolidating adjustments and reconciling items | ||||||||||||||||||||
Non-interest revenues | $ | (938 | ) | (a) | $ | 325 | (a) | $ | (597 | ) | (a) | $ | (1,312 | ) | (a) | |||||
Net interest income | (165 | ) | (b) | 1,148 | (b) | 47 | (b) | 3,137 | (b) | |||||||||||
Loss on repurchase or early retirement of debt | (458 | ) | (170 | ) | (458 | ) | (2,796 | ) | ||||||||||||
Reversal (provision) for loan losses | - | (984 | ) | - | (2,799 | ) | ||||||||||||||
Total net revenues after provision for loan losses | $ | (1,561 | ) | $ | 319 | $ | (1,008 | ) | $ | (3,770 | ) | |||||||||
Non-interest expenses | 1,135 | (c) | 599 | (c) | 3,676 | (c) | 2,358 | (c) | ||||||||||||
Non-controlling interest (expense) income | (67 | ) | 823 | (80 | ) | 138 | ||||||||||||||
Segment operating pre-tax net income (loss) | $ | (2,629 | ) | $ | (1,103 | ) | $ | (4,604 | ) | $ | (6,266 | ) | ||||||||
Total Segments | ||||||||||||||||||||
Non-interest revenues | $ | 21,522 | $ | 30,012 | $ | 72,406 | $ | 99,857 | ||||||||||||
Net interest income | 398 | 4,863 | 4,749 | 11,906 | ||||||||||||||||
Loss on repurchase, reissuance or early retirement of debt | (458 | ) | (170 | ) | (458 | ) | (2,838 | ) | ||||||||||||
Provision for loan losses | (438 | ) | (1,454 | ) | (438 | ) | (4,199 | ) | ||||||||||||
Total net revenues after provision for loan losses | $ | 21,024 | $ | 33,251 | $ | 76,259 | $ | 104,726 | ||||||||||||
Non-interest expenses | 26,372 | 31,613 | 82,282 | 106,717 | ||||||||||||||||
Non-controlling interest (expense) income | (67 | ) | 823 | (80 | ) | 138 | ||||||||||||||
Consolidated net income (loss) attributable to JMP Group LLC | $ | (5,281 | ) | $ | 815 | $ | (5,943 | ) | $ | (2,129 | ) | |||||||||
Total assets | $ | 233,291 | $ | 1,363,566 | $ | 233,291 | $ | 1,363,566 |
Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||||||||
(In thousands) | Broker-Dealer | Asset Management | Corporate Costs | Eliminations | Total Segments | Adjustments | Consolidated GAAP | ||||||||||||||||||||||||||||||
Asset Management Fee Income | Investment Income | Total Asset Management | |||||||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||||||||
Investment banking | $ | 14,625 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 14,625 | $ | - | $ | 14,625 | |||||||||||||||||||
Brokerage | 4,187 | - | - | - | - | - | 4,187 | - | 4,187 | ||||||||||||||||||||||||||||
Asset management related fees | 152 | 1,903 | 333 | 2,236 | - | (45 | ) | 2,343 | (627 | ) | (a) | 1,716 | |||||||||||||||||||||||||
Principal transactions | - | - | 81 | 81 | - | - | 81 | (17,633 | ) | (b) | (17,552 | ) | |||||||||||||||||||||||||
Net dividend income | - | - | 256 | 256 | - | - | 256 | (29 | ) | (c ) | 227 | ||||||||||||||||||||||||||
Other income | - | - | - | - | - | - | - | 935 | (a) | 935 | |||||||||||||||||||||||||||
Net interest income | - | - | 458 | 458 | - | - | 458 | (26 | ) | (c ) | 432 | ||||||||||||||||||||||||||
Gain on repurchase, reissuance or early retirement of debt | - | - | 786 | 786 | - | - | 786 | (89 | ) | (d ) | 697 | ||||||||||||||||||||||||||
Total net revenues | 18,964 | 1,903 | 1,914 | 3,817 | - | (45 | ) | 22,736 | (17,469 | ) | 5,267 | ||||||||||||||||||||||||||
Non-interest expenses | |||||||||||||||||||||||||||||||||||||
Non-interest expenses | 19,201 | 2,362 | 151 | 2,513 | 1,792 | (45 | ) | 23,461 | 884 | (e ) | 24,345 | ||||||||||||||||||||||||||
Operating income (loss) before taxes | (237 | ) | (459 | ) | 1,763 | 1,304 | (1,792 | ) | - | (725 | ) | (18,353 | ) | (19,078 | ) | ||||||||||||||||||||||
Income tax expense (benefit) | (62 | ) | (120 | ) | 459 | 339 | (465 | ) | - | (188 | ) | (7,051 | ) | (f ) | (7,239 | ) | |||||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | - | - | - | - | - | (91 | ) | (a), (c ), (e ) | (91 | ) | |||||||||||||||||||||||||
Operating net income (loss) | $ | (175 | ) | $ | (339 | ) | $ | 1,304 | $ | 965 | $ | (1,327 | ) | $ | - | $ | (537 | ) | $ | (11,211 | ) | (g ) | $ | (11,748 | ) | ||||||||||||
Segment assets | $ | 34,685 | $ | 9,873 | $ | 78,236 | $ | 88,109 | $ | 228,197 | $ | (161,947 | ) | $ | 189,044 | $ | - | $ | 189,044 |
(a) | |
(b) | Total segment principal transaction revenues exclude certain unrealized mark-to-market |
(d) | Total segment gain/(loss) repurchase/early retirement of debt excludes losses on write offs of debt issuance costs related to |
(f) | Total segment income tax expense (benefit) assumes a combined federal, state and local income tax rate of 26%. |
(g) | Operating net income (loss) is reconciled to GAAP net income (loss) attributable to JMP Group LLC. |
(In thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Operating net income (loss) | $ | (1,963 | ) | $ | 1,741 | $ | (991 | ) | $ | 3,494 | ||||||
Addback (subtract) of segment income tax expense (benefit) | (689 | ) | 177 | (348 | ) | 643 | ||||||||||
Total segments adjusted operating pre-tax net income (loss) | $ | (2,652 | ) | $ | 1,918 | $ | (1,339 | ) | $ | 4,137 | ||||||
Subtract (addback) | ||||||||||||||||
Share-based awards and deferred compensation | 753 | 76 | 2,184 | 289 | ||||||||||||
General loan loss provision – CLOs, CLO warehouse | - | 855 | - | 2,348 | ||||||||||||
Early debt retirement/reissuance | 625 | 170 | 625 | 1,488 | ||||||||||||
CLO refinancing costs | - | - | - | 54 | ||||||||||||
Amortization of intangible asset – CLO III | - | 69 | 277 | 207 | ||||||||||||
Unrealized loss on real estate fund investment – depreciation and amortization | 647 | 260 | 1,425 | 1,864 | ||||||||||||
Unrealized mark-to-market (gain) loss on strategic equity investments | 604 | (327 | ) | 93 | 16 | |||||||||||
Total consolidation adjustments and reconciling items | 2,629 | 1,103 | 4,604 | 6,266 | ||||||||||||
Consolidated pre-tax net income (loss) attributable to JMP Group LLC | $ | (5,281 | ) | $ | 815 | $ | (5,943 | ) | $ | (2,129 | ) | |||||
Income tax expense (benefit) | (1,220 | ) | 527 | (5,839 | ) | (146 | ) | |||||||||
Consolidated net income (loss) attributable to JMP Group LLC | $ | (4,061 | ) | $ | 288 | $ | (104 | ) | $ | (1,983 | ) |
Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||||||||
(In thousands) | Broker-Dealer | Asset Management | Corporate Costs | Eliminations | Total Segments | Adjustments | Consolidated GAAP | ||||||||||||||||||||||||||||||
Asset Management Fee Income | Investment Income | Total Asset Management | |||||||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||||||||
Investment banking | $ | 11,879 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 11,879 | $ | - | $ | 11,879 | |||||||||||||||||||
Brokerage | 4,535 | - | - | - | - | - | 4,535 | - | 4,535 | ||||||||||||||||||||||||||||
Asset management related fees | 6 | 2,361 | 46 | 2,407 | - | (1,014 | ) | 1,399 | 304 | (a) | 1,703 | ||||||||||||||||||||||||||
Principal transactions | - | - | 5,387 | 5,387 | - | - | 5,387 | (99 | ) | (b) | 5,288 | ||||||||||||||||||||||||||
Loss on sale, payoff, and mark-to-market of loans | - | - | (17 | ) | (17 | ) | - | - | (17 | ) | - | (17 | ) | ||||||||||||||||||||||||
Net dividend income | - | - | 335 | 335 | - | - | 335 | (39 | ) | (c ) | 296 | ||||||||||||||||||||||||||
Other income | - | - | - | - | - | - | - | (35 | ) | (a) | (35 | ) | |||||||||||||||||||||||||
Net interest income | - | - | 3,322 | 3,322 | - | - | 3,322 | 196 | (c ) | 3,518 | |||||||||||||||||||||||||||
- | |||||||||||||||||||||||||||||||||||||
Total net revenues | 16,420 | 2,361 | 9,073 | 11,434 | - | (1,014 | ) | 26,840 | 327 | 27,167 | |||||||||||||||||||||||||||
Non-interest expenses | |||||||||||||||||||||||||||||||||||||
Non-interest expenses | 17,900 | 3,090 | 2,549 | 5,639 | 2,060 | (1,014 | ) | 24,585 | 1,545 | (d) | 26,130 | ||||||||||||||||||||||||||
Operating income (loss) before taxes | (1,480 | ) | (729 | ) | 6,524 | 5,795 | (2,060 | ) | - | 2,255 | (1,218 | ) | 1,037 | ||||||||||||||||||||||||
Income tax expense (benefit) | (385 | ) | (191 | ) | 1,697 | 1,506 | (535 | ) | - | 586 | (4,688 | ) | (e ) | (4,102 | ) | ||||||||||||||||||||||
Net income attributable to non-controlling interest | - | - | - | - | - | - | - | 70 | (a), (c ), (d) | 70 | |||||||||||||||||||||||||||
Operating net income (loss) | $ | (1,095 | ) | $ | (538 | ) | $ | 4,827 | $ | 4,289 | $ | (1,525 | ) | $ | - | $ | 1,669 | $ | 3,470 | (f ) | $ | 5,069 | |||||||||||||||
Segment assets | $ | 46,764 | $ | 11,053 | $ | 116,358 | $ | 127,411 | $ | 304,719 | $ | (257,129 | ) | $ | 221,765 | $ | - | $ | 221,765 |
(a) | Total segment asset management-related fees include income from fee sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds, which are reported as other income under GAAP. In addition, total segment asset management-related fees exclude base management fees and incentive fees attributable to non-controlling interests. |
(b) | Total segment principal transaction revenues exclude certain unrealized mark-to-market gains or losses, including those related to impairment of CLO debt securities and the Company's investment in Harvest Capital Credit Corporation, as well as unrealized losses derived from depreciation and amortization of real estate investment properties. |
(c) | Total segment net dividend income and net interest income exclude those attributable to non-controlling interests. |
(d) | Total segment non-interest expenses exclude compensation expense recognized under GAAP related to equity awards, expenses attributable to non-controlling interests and amortization of an intangible asset related to CLO III prior to March 31, 2019. |
(e) | Total segment income tax expense (benefit) assumes a combined federal, state and local income tax rate of 26%. |
(f) | Operating net income (loss) is reconciled to GAAP net income (loss) attributable to JMP Group LLC. |
2423. Nonconsolidated Variable Interest Entities
VIEs for which the Company is not the primary beneficiary consists of private equity funds, CLO investments, and other investments in which the Company has an equity ownership interest. In the first quarter of 2019, the Company deconsolidated its CLOs from its Consolidated Statements of Financial Condition but retained an ownership investment in the CLOs. As the CLOs are VIEs, the CLOs are presented in the nonconsolidated VIE table as of September 30, 2019. See Note 1 for additional information on deconsolidation of the CLOs. The Company's maximum exposure to loss from its non-consolidated VIEs consists of equity investments and receivables as follows:
(In thousands) | As of | As of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Statement | Maximum | Financial Statement | Maximum | Financial Statement | Maximum | Financial Statement | Maximum | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying Amount | Exposure to | Carrying Amount | Exposure to | Carrying Amount | Exposure to | Carrying Amount | Exposure to | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | Liabilities | Loss | VIE Assets | Assets | Liabilities | Loss | VIE Assets | Assets | Liabilities | Loss | VIE Assets | Assets | Liabilities | Loss | VIE Assets | |||||||||||||||||||||||||||||||||||||||||||||||||
CLOs | $ | 81,354 | $ | - | $ | 81,354 | $ | 1,443,237 | $ | - | $ | - | $ | - | $ | - | $ | 49,019 | $ | - | $ | 49,019 | $ | 1,500,459 | $ | 73,266 | $ | - | $ | 73,266 | $ | 1,439,442 | ||||||||||||||||||||||||||||||||
Fund investments | 10,107 | - | 12,960 | 342,978 | 5,083 | - | 7,028 | 204,646 | 10,203 | 233 | 13,964 | 355,483 | 10,396 | 207 | 14,196 | 346,206 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other investments | 4,897 | 104 | 4,897 | 1,199,083 | 933 | - | 933 | 1,235,146 | 4,121 | 17 | 4,121 | 1,176,114 | 4,424 | 95 | 4,424 | 1,140,128 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 96,358 | $ | 104 | $ | 99,211 | $ | 2,985,298 | $ | 6,016 | $ | - | $ | 7,961 | $ | 1,439,792 | $ | 63,343 | $ | 250 | $ | 67,104 | $ | 3,032,056 | $ | 88,086 | $ | 302 | $ | 91,886 | $ | 2,925,776 |
25. Consolidating Financial Statements
JMP Group Inc., a wholly-owned subsidiary of JMP Group LLC, is the primary obligor of the Company’s 2017 Senior Notes and 2013 Senior Notes (Note 7). In conjunction with the Reorganization Transaction, on January 1, 2015, JMP Group LLC and JMP Investment Holdings became guarantors of JMP Group Inc.'s obligations under the Senior Notes. The guarantee is full and unconditional. One of the non-guarantor subsidiaries, JMP Securities, is subject to certain regulations, which require the maintenance of minimum net capital. This requirement may limit the issuer’s access to this subsidiary’s assets. On September 27, 2019, the Company announced that it will redeem the 2013 Senior Notes on October 28, 2019. See Note 7 for further information.
The following financial statements present the financial condition, results of operations, and cash flows of JMP Group LLC and JMP Investment Holdings LLC ("Parent Companies and Guarantors"), JMP Group Inc. ("Subsidiary Issuer"), all other consolidated subsidiaries (collectively "Non-Guarantor Subsidiaries"), and the elimination of entries necessary to consolidate or combine the Subsidiary Issuer with the Parent Companies and Guarantors and Non-Guarantor Subsidiaries. These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X Rule 3-10.
As of September 30, 2019 | ||||||||||||||||||||
Parent Companies | Subsidiary | Non-Guarantor | Consolidated JMP | |||||||||||||||||
and Guarantors | Issuer | Subsidiaries | Eliminations | Group LLC | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 11,651 | $ | 7,676 | $ | 28,693 | $ | - | $ | 48,020 | ||||||||||
Restricted cash and deposits | - | 1,221 | - | - | 1,221 | |||||||||||||||
Investment banking fees receivable, net of allowance for doubtful accounts | - | - | 7,392 | - | 7,392 | |||||||||||||||
Marketable securities owned | 12,868 | 26,927 | 43,811 | (51 | ) | 83,555 | ||||||||||||||
Other investments | 3,994 | 2,723 | 28,124 | - | 34,841 | |||||||||||||||
Loans held for investment, net of allowance for loan losses | 1,775 | 574 | 2,428 | - | 4,777 | |||||||||||||||
Interest receivable | - | 4 | 848 | (480 | ) | 372 | ||||||||||||||
Fixed assets, net | - | - | 2,649 | - | 2,649 | |||||||||||||||
Operating lease right-of-use asset | - | 20,293 | - | - | 20,293 | |||||||||||||||
Other assets | 966 | 82,777 | 39,435 | (93,007 | ) | 30,171 | ||||||||||||||
Investment in subsidiaries | 198,544 | 73,602 | - | (272,146 | ) | - | ||||||||||||||
Total assets | $ | 229,798 | $ | 215,797 | $ | 153,380 | $ | (365,684 | ) | $ | 233,291 | |||||||||
Liabilities and Equity | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Marketable securities sold, but not yet purchased, at fair value | $ | - | $ | - | $ | 2,837 | $ | - | $ | 2,837 | ||||||||||
Accrued compensation | 615 | 1,699 | 15,553 | - | 17,867 | |||||||||||||||
Interest payable | 28 | 463 | 539 | (481 | ) | 549 | ||||||||||||||
Notes payable | 81,034 | - | 27,746 | (92,968 | ) | 15,812 | ||||||||||||||
Bond payable, net of debt issuance costs | 34,227 | 48,252 | - | (52 | ) | 82,427 | ||||||||||||||
Operating lease liability | - | 26,145 | - | - | 26,145 | |||||||||||||||
Other liabilities | 6,188 | 250 | 9,635 | 68 | 16,141 | |||||||||||||||
Total liabilities | $ | 122,092 | $ | 76,809 | $ | 56,310 | $ | (93,433 | ) | $ | 161,778 | |||||||||
Total shareholders' equity | 107,706 | 138,988 | 97,618 | (272,463 | ) | 71,849 | ||||||||||||||
Nonredeemable Non-controlling Interest | $ | - | $ | - | $ | (548 | ) | $ | 212 | $ | (336 | ) | ||||||||
Total equity | $ | 107,706 | $ | 138,988 | $ | 97,070 | $ | (272,251 | ) | $ | 71,513 | |||||||||
Total liabilities and equity | $ | 229,798 | $ | 215,797 | $ | 153,380 | $ | (365,684 | ) | $ | 233,291 |
As of December 31, 2018 | ||||||||||||||||||||
Parent Companies | Subsidiary | Non-Guarantor | Consolidated JMP | |||||||||||||||||
and Guarantors | Issuer | Subsidiaries | Eliminations | Group LLC | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 4,863 | $ | 8,755 | $ | 57,309 | $ | - | $ | 70,927 | ||||||||||
Restricted cash and deposits | - | 1,221 | 60,660 | - | 61,881 | |||||||||||||||
Investment banking fees receivable, net of allowance for doubtful accounts | - | - | 6,647 | - | 6,647 | |||||||||||||||
Marketable securities owned, at fair value | 10,027 | - | 8,921 | (74 | ) | 18,874 | ||||||||||||||
Other investments | 10,922 | 1,785 | 13,262 | (9,845 | ) | 16,124 | ||||||||||||||
Loans held for investment, net of allowance for loan losses | 1,139 | - | 28,469 | - | 29,608 | |||||||||||||||
Loans collateralizing asset-backed securities issued, net of allowance for loan losses | - | - | 1,161,463 | - | 1,161,463 | |||||||||||||||
Interest receivable | 137 | 1 | 3,345 | (479 | ) | 3,004 | ||||||||||||||
Fixed assets, net | - | - | 2,351 | - | 2,351 | |||||||||||||||
Other assets | (18,812 | ) | 121,932 | 63,386 | (146,143 | ) | 20,363 | |||||||||||||
Investment in subsidiaries | 317,113 | 77,427 | - | (394,540 | ) | - | ||||||||||||||
Total assets | $ | 325,389 | $ | 211,121 | $ | 1,405,813 | $ | (551,081 | ) | $ | 1,391,242 | |||||||||
Liabilities and Equity | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Marketable securities sold, but not yet purchased, at fair value | $ | - | $ | - | $ | 4,626 | $ | - | $ | 4,626 | ||||||||||
Accrued compensation | - | 150 | 41,459 | - | 41,609 | |||||||||||||||
Asset-backed securities issued, net of debt issuance costs | - | - | 1,122,187 | (9,845 | ) | 1,112,342 | ||||||||||||||
Interest payable | - | 1,071 | 10,614 | (475 | ) | 11,210 | ||||||||||||||
Notes payable | 127,603 | - | 17,763 | (144,537 | ) | 829 | ||||||||||||||
CLO warehouse credit facilities | - | - | 22,500 | - | 22,500 | |||||||||||||||
Bond payable, net of debt issuance costs | - | 83,572 | - | (75 | ) | 83,497 | ||||||||||||||
Other liabilities | 2,700 | 7,603 | 8,620 | (1,500 | ) | 17,423 | ||||||||||||||
Total liabilities | $ | 130,303 | $ | 92,396 | $ | 1,227,769 | $ | (156,432 | ) | $ | 1,294,036 | |||||||||
Total shareholders' (deficit) equity | 181,497 | 118,725 | 178,346 | (394,861 | ) | 83,707 | ||||||||||||||
Nonredeemable Non-controlling Interest | $ | 13,589 | $ | - | $ | (302 | ) | $ | 212 | $ | 13,499 | |||||||||
Total equity | $ | 195,086 | $ | 118,725 | $ | 178,044 | $ | (394,649 | ) | $ | 97,206 | |||||||||
Total liabilities and equity | $ | 325,389 | $ | 211,121 | $ | 1,405,813 | $ | (551,081 | ) | $ | 1,391,242 |
For the Three Months Ended September 30, 2019 | ||||||||||||||||||||
Parent Companies | Subsidiary | Non-Guarantor | Consolidated JMP | |||||||||||||||||
and Guarantors | Issuer | Subsidiaries | Eliminations | Group LLC | ||||||||||||||||
Revenues | ||||||||||||||||||||
Investment banking | $ | - | $ | - | $ | 15,228 | $ | - | $ | 15,228 | ||||||||||
Brokerage | - | - | 3,968 | - | 3,968 | |||||||||||||||
Asset management fees | - | - | 1,675 | (47 | ) | 1,628 | ||||||||||||||
Principal transactions | 281 | 78 | (699 | ) | - | (340 | ) | |||||||||||||
Loss on sale, payoff and mark-to-market of loans | - | - | - | - | - | |||||||||||||||
Net dividend income | 6 | 26 | 247 | - | 279 | |||||||||||||||
Other income | 129 | 76 | 554 | - | 759 | |||||||||||||||
Equity earnings (losses) of subsidiaries | (1,550 | ) | (2,565 | ) | - | 4,115 | - | |||||||||||||
Non-interest revenues (losses) | (1,134 | ) | (2,385 | ) | 20,973 | 4,068 | 21,522 | |||||||||||||
Interest income | 815 | 1,339 | 1,655 | (1,481 | ) | 2,328 | ||||||||||||||
Interest expense | (808 | ) | (1,918 | ) | (684 | ) | 1,480 | (1,930 | ) | |||||||||||
Net interest income (expense) | 7 | (579 | ) | 971 | (1 | ) | 398 | |||||||||||||
Loss on repurchase, reissuance or early retirement of debt | - | (458 | ) | - | - | (458 | ) | |||||||||||||
Provision for loan losses | - | (438 | ) | - | - | (438 | ) | |||||||||||||
Total net revenues (losses) after provision for loan losses | (1,127 | ) | (3,860 | ) | 21,944 | 4,067 | 21,024 | |||||||||||||
Non-interest expenses | ||||||||||||||||||||
Compensation and benefits | 284 | 1,117 | 16,105 | - | 17,506 | |||||||||||||||
Administration | 158 | 108 | 2,082 | (47 | ) | 2,301 | ||||||||||||||
Brokerage, clearing and exchange fees | - | - | 617 | - | 617 | |||||||||||||||
Travel and business development | 5 | 17 | 1,241 | - | 1,263 | |||||||||||||||
Managed deal expense | - | - | 685 | - | 685 | |||||||||||||||
Communications and technology | 1 | 3 | 1,057 | - | 1,061 | |||||||||||||||
Occupancy | - | - | 1,196 | - | 1,196 | |||||||||||||||
Professional fees | 594 | 60 | 582 | - | 1,236 | |||||||||||||||
Depreciation | - | - | 307 | - | 307 | |||||||||||||||
Other | - | - | 200 | - | 200 | |||||||||||||||
Total non-interest expenses | 1,042 | 1,305 | 24,072 | (47 | ) | 26,372 | ||||||||||||||
Net income (loss) before income tax expense | (2,169 | ) | (5,165 | ) | (2,128 | ) | 4,114 | (5,348 | ) | |||||||||||
Income tax expense (benefit) | 2 | (211 | ) | (1,011 | ) | - | (1,220 | ) | ||||||||||||
Net income (loss) | (2,171 | ) | (4,954 | ) | (1,117 | ) | 4,114 | (4,128 | ) | |||||||||||
Less: Net loss attributable to nonredeemable non-controlling interest | - | - | (67 | ) | - | (67 | ) | |||||||||||||
Net income (loss) attributable to JMP Group LLC | $ | (2,171 | ) | $ | (4,954 | ) | $ | (1,050 | ) | $ | 4,114 | $ | (4,061 | ) |
For the Three Months Ended September 30, 2018 | ||||||||||||||||||||
Parent Companies | Subsidiary | Non-Guarantor | Consolidated JMP | |||||||||||||||||
and Guarantors | Issuer | Subsidiaries | Eliminations | Group LLC | ||||||||||||||||
Revenues | ||||||||||||||||||||
Investment banking | $ | - | $ | - | $ | 21,095 | $ | - | $ | 21,095 | ||||||||||
Brokerage | - | - | 4,676 | - | 4,676 | |||||||||||||||
Asset management fees | - | - | 3,742 | (40 | ) | 3,702 | ||||||||||||||
Principal transactions | 620 | (390 | ) | 239 | - | 469 | ||||||||||||||
Loss on sale, payoff and mark-to-market of loans | - | - | (556 | ) | - | (556 | ) | |||||||||||||
Net dividend income | 284 | 13 | 23 | - | 320 | |||||||||||||||
Other income | - | - | 306 | - | 306 | |||||||||||||||
Equity earnings of subsidiaries | 5,490 | 1,635 | - | (7,125 | ) | - | ||||||||||||||
Non-interest revenues | 6,394 | 1,258 | 29,525 | (7,165 | ) | 30,012 | ||||||||||||||
Interest income | 639 | 1,084 | 19,122 | (2,193 | ) | 18,652 | ||||||||||||||
Interest expense | (1,080 | ) | (2,144 | ) | (12,758 | ) | 2,193 | (13,789 | ) | |||||||||||
Net interest income (expense) | (441 | ) | (1,060 | ) | 6,364 | - | 4,863 | |||||||||||||
Loss on repurchase, reissuance or early retirement of debt | - | (170 | ) | - | - | (170 | ) | |||||||||||||
Provision for loan losses | (149 | ) | - | (1,305 | ) | - | (1,454 | ) | ||||||||||||
Total net revenues after provision for loan losses | 5,804 | 28 | 34,584 | (7,165 | ) | 33,251 | ||||||||||||||
Non-interest expenses | ||||||||||||||||||||
Compensation and benefits | 745 | 1,086 | 20,840 | - | 22,671 | |||||||||||||||
Administration | 151 | 128 | 2,063 | (40 | ) | 2,302 | ||||||||||||||
Brokerage, clearing and exchange fees | - | - | 808 | - | 808 | |||||||||||||||
Travel and business development | 11 | 12 | 1,057 | - | 1,080 | |||||||||||||||
Communications and technology | 1 | 1 | 1,038 | - | 1,040 | |||||||||||||||
Managed deal expense | - | - | 614 | - | 614 | |||||||||||||||
Occupancy | - | - | 1,172 | - | 1,172 | |||||||||||||||
Professional fees | 586 | 169 | 517 | - | 1,272 | |||||||||||||||
Depreciation | - | - | 285 | - | 285 | |||||||||||||||
Other | 69 | - | 300 | - | 369 | |||||||||||||||
Total non-interest expenses | 1,563 | 1,396 | 28,694 | (40 | ) | 31,613 | ||||||||||||||
Net income (loss) before income tax expense | 4,241 | (1,368 | ) | 5,890 | (7,125 | ) | 1,638 | |||||||||||||
Income tax expense (benefit) | - | (265 | ) | 792 | - | 527 | ||||||||||||||
Net income (loss) | 4,241 | (1,103 | ) | 5,098 | (7,125 | ) | 1,111 | |||||||||||||
Less: Net income attributable to nonredeemable non-controlling interest | 707 | - | 116 | - | 823 | |||||||||||||||
Net income (loss) attributable to JMP Group LLC | $ | 3,534 | $ | (1,103 | ) | $ | 4,982 | $ | (7,125 | ) | $ | 288 |
For the Nine Months Ended September 30, 2019 | ||||||||||||||||||||
Parent Companies | Subsidiary | Non-Guarantor | Consolidated JMP | |||||||||||||||||
and Guarantors | Issuer | Subsidiaries | Eliminations | Group LLC | ||||||||||||||||
Revenues | ||||||||||||||||||||
Investment banking | $ | - | $ | - | $ | 44,843 | $ | - | $ | 44,843 | ||||||||||
Brokerage | - | - | 13,160 | - | 13,160 | |||||||||||||||
Asset management fees | - | - | 5,755 | (70 | ) | 5,685 | ||||||||||||||
Principal transactions | 672 | 561 | 5,138 | - | 6,371 | |||||||||||||||
Loss on sale, payoff and mark-to-market of loans | (21 | ) | - | (17 | ) | - | (38 | ) | ||||||||||||
Net dividend income | 125 | 66 | 677 | - | 868 | |||||||||||||||
Other income | 364 | 76 | 1,077 | - | 1,517 | |||||||||||||||
Equity earnings (losses) of subsidiaries | 9,875 | (3,824 | ) | - | (6,051 | ) | - | |||||||||||||
Non-interest revenues (losses) | 11,015 | (3,121 | ) | 70,633 | (6,121 | ) | 72,406 | |||||||||||||
Interest income | 3,645 | 3,541 | 17,633 | (5,428 | ) | 19,391 | ||||||||||||||
Interest expense | (2,920 | ) | (6,052 | ) | (11,263 | ) | 5,593 | (14,642 | ) | |||||||||||
Net interest income (expense) | 725 | (2,511 | ) | 6,370 | 165 | 4,749 | ||||||||||||||
Loss on repurchase, reissuance or early retirement of debt | - | (458 | ) | - | - | (458 | ) | |||||||||||||
Provision for loan losses | - | (438 | ) | - | - | (438 | ) | |||||||||||||
Total net revenues (losses) after provision for loan losses | 11,740 | (6,528 | ) | 77,003 | (5,956 | ) | 76,259 | |||||||||||||
Non-interest expenses | ||||||||||||||||||||
Compensation and benefits | 1,309 | 3,209 | 50,155 | - | 54,673 | |||||||||||||||
Administration | 460 | 327 | 6,261 | (70 | ) | 6,978 | ||||||||||||||
Brokerage, clearing and exchange fees | - | - | 2,051 | - | 2,051 | |||||||||||||||
Travel and business development | 79 | 37 | 3,515 | - | 3,631 | |||||||||||||||
Managed deal expense | - | - | 2,552 | - | 2,552 | |||||||||||||||
Communications and technology | 3 | 4 | 3,234 | - | 3,241 | |||||||||||||||
Occupancy | - | - | 4,028 | - | 4,028 | |||||||||||||||
Professional fees | 1,679 | 184 | 1,650 | - | 3,513 | |||||||||||||||
Depreciation | - | - | 915 | - | 915 | |||||||||||||||
Other | 277 | - | 423 | - | 700 | |||||||||||||||
Total non-interest expenses | 3,807 | 3,761 | 74,784 | (70 | ) | 82,282 | ||||||||||||||
Net income (loss) before income tax expense | 7,933 | (10,289 | ) | 2,219 | (5,886 | ) | (6,023 | ) | ||||||||||||
Income tax expense (benefit) | 256 | (5,454 | ) | (641 | ) | - | (5,839 | ) | ||||||||||||
Net income (loss) | 7,677 | (4,835 | ) | 2,860 | (5,886 | ) | (184 | ) | ||||||||||||
Less: Net income (loss) attributable to nonredeemable non-controlling interest | 167 | - | (247 | ) | - | (80 | ) | |||||||||||||
Net income (loss) attributable to JMP Group LLC | $ | 7,510 | $ | (4,835 | ) | $ | 3,107 | $ | (5,886 | ) | $ | (104 | ) |
For the Nine Months Ended September 30, 2018 | ||||||||||||||||||||
Parent Companies | Subsidiary | Non-Guarantor | Consolidated JMP | |||||||||||||||||
and Guarantors | Issuer | Subsidiaries | Eliminations | Group LLC | ||||||||||||||||
Revenues | ||||||||||||||||||||
Investment banking | $ | - | $ | - | $ | 70,319 | $ | - | $ | 70,319 | ||||||||||
Brokerage | - | - | 14,787 | - | 14,787 | |||||||||||||||
Asset management fees | - | - | 15,766 | (261 | ) | 15,505 | ||||||||||||||
Principal transactions | (2,026 | ) | (533 | ) | 1,092 | - | (1,467 | ) | ||||||||||||
Loss on sale, payoff and mark-to-market of loans | (15 | ) | - | (873 | ) | - | (888 | ) | ||||||||||||
Net dividend income | 836 | 27 | 72 | - | 935 | |||||||||||||||
Other income | - | - | 666 | - | 666 | |||||||||||||||
Equity earnings of subsidiaries | 12,586 | 4,426 | - | (17,012 | ) | - | ||||||||||||||
Non-interest revenues | 11,381 | 3,920 | 101,829 | (17,273 | ) | 99,857 | ||||||||||||||
Interest income | 1,972 | 3,366 | 48,417 | (6,724 | ) | 47,031 | ||||||||||||||
Interest expense | (3,382 | ) | (6,735 | ) | (31,731 | ) | 6,723 | (35,125 | ) | |||||||||||
Net interest income (expense) | (1,410 | ) | (3,369 | ) | 16,686 | (1 | ) | 11,906 | ||||||||||||
Loss on repurchase, reissuance or early retirement of debt | (42 | ) | (170 | ) | (2,626 | ) | - | (2,838 | ) | |||||||||||
Provision for loan losses | (134 | ) | - | (4,065 | ) | - | (4,199 | ) | ||||||||||||
Total net revenues after provision for loan losses | 9,795 | 381 | 111,824 | (17,274 | ) | 104,726 | ||||||||||||||
Non-interest expenses | ||||||||||||||||||||
Compensation and benefits | 1,826 | 3,161 | 71,083 | - | 76,070 | |||||||||||||||
Administration | 477 | 367 | 6,663 | (261 | ) | 7,246 | ||||||||||||||
Brokerage, clearing and exchange fees | - | - | 2,373 | - | 2,373 | |||||||||||||||
Travel and business development | 46 | 31 | 3,159 | - | 3,236 | |||||||||||||||
Managed deal expense | - | - | 4,528 | - | 4,528 | |||||||||||||||
Communications and technology | 2 | 6 | 3,141 | - | 3,149 | |||||||||||||||
Occupancy | - | - | 3,432 | - | 3,432 | |||||||||||||||
Professional fees | 1,847 | 321 | 2,147 | - | 4,315 | |||||||||||||||
Depreciation | - | - | 836 | - | 836 | |||||||||||||||
Other | 208 | - | 1,324 | - | 1,532 | |||||||||||||||
Total non-interest expenses | 4,406 | 3,886 | 98,686 | (261 | ) | 106,717 | ||||||||||||||
Net income (loss) before income tax expense | 5,389 | (3,505 | ) | 13,138 | (17,013 | ) | (1,991 | ) | ||||||||||||
Income tax expense (benefit) | - | (2,520 | ) | 2,374 | - | (146 | ) | |||||||||||||
Net income (loss) | 5,389 | (985 | ) | 10,764 | (17,013 | ) | (1,845 | ) | ||||||||||||
Less: Net income (loss) attributable to nonredeemable non-controlling interest | 477 | - | (339 | ) | - | 138 | ||||||||||||||
Net income (loss) attributable to JMP Group LLC | $ | 4,912 | $ | (985 | ) | $ | 11,103 | $ | (17,013 | ) | $ | (1,983 | ) |
For the Nine Months Ended September 30, 2019 | ||||||||||||||||||||
Parent Companies | Subsidiary | Non-Guarantor | Consolidated JMP | |||||||||||||||||
and Guarantors | Issuer | Subsidiaries | Eliminations | Group LLC | ||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 3,309 | $ | (4,054 | ) | $ | (7,271 | ) | $ | (22,412 | ) | $ | (30,428 | ) | ||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchases of fixed assets | - | - | (1,341 | ) | - | (1,341 | ) | |||||||||||||
Purchases of other investments | (499 | ) | (867 | ) | (11,172 | ) | - | (12,538 | ) | |||||||||||
Sales or distributions from other investments | 2,095 | 411 | 9,028 | (879 | ) | 10,655 | ||||||||||||||
Funding of loans collateralizing asset-backed securities issued | - | - | (35,153 | ) | - | (35,153 | ) | |||||||||||||
Funding of loans held for investment | (1,136 | ) | (963 | ) | (23,580 | ) | - | (25,679 | ) | |||||||||||
Sale, payoff and principal receipts of loans collateralizing asset-backed securities issued | - | - | 23,806 | - | 23,806 | |||||||||||||||
Sale, payoff and principal receipts on loans held for investment | 327 | 7 | 6,877 | - | 7,211 | |||||||||||||||
Net decrease in cash and restricted cash due to deconsolidation of subsidiaries | - | - | (27,771 | ) | - | (27,771 | ) | |||||||||||||
Investment in subsidiary | 51,495 | 3,825 | - | (55,320 | ) | - | ||||||||||||||
Net cash provided by (used in) investing activities | $ | 52,282 | $ | 2,413 | $ | (59,306 | ) | $ | (56,199 | ) | $ | (60,810 | ) | |||||||
Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from drawdowns on line of credit | - | - | 16,583 | - | 16,583 | |||||||||||||||
Proceeds from drawdowns on CLO warehouse facilities | - | - | 7,750 | - | 7,750 | |||||||||||||||
Proceeds from bond issuance | 36,000 | - | - | - | 36,000 | |||||||||||||||
Payment of debt issuance costs | (1,778 | ) | (6 | ) | (103 | ) | - | (1,887 | ) | |||||||||||
Repayment of line of credit | - | - | (1,600 | ) | - | (1,600 | ) | |||||||||||||
Repayment of asset-backed securities issued | - | - | (1,679 | ) | 878 | (801 | ) | |||||||||||||
Repayment on bonds payable | - | (36,000 | ) | - | 23 | (35,977 | ) | |||||||||||||
Distributions and distribution equivalents paid on common shares and RSUs | (2,686 | ) | - | - | - | (2,686 | ) | |||||||||||||
Purchases of common shares for treasury | (8,614 | ) | - | - | - | (8,614 | ) | |||||||||||||
Distributions to non-controlling interest shareholders | (913 | ) | - | - | - | (913 | ) | |||||||||||||
Employee taxes paid on shares withheld for tax-withholding purposes | (184 | ) | - | - | - | (184 | ) | |||||||||||||
Repayment of note payable | (11,500 | ) | - | (5,000 | ) | 16,500 | - | |||||||||||||
Capital contributions of parent | (59,128 | ) | 36,568 | (38,650 | ) | 61,210 | - | |||||||||||||
Net cash provided by (used in) financing activities | $ | (48,803 | ) | $ | 562 | $ | (22,699 | ) | $ | 78,611 | $ | 7,671 | ||||||||
Net increase (decrease) in cash and cash equivalents | 6,788 | (1,079 | ) | (89,276 | ) | - | (83,567 | ) | ||||||||||||
Cash, cash equivalents and restricted cash, beginning of period | 4,863 | 9,976 | 117,969 | - | 132,808 | |||||||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 11,651 | $ | 8,897 | $ | 28,693 | $ | - | $ | 49,241 |
For the Nine Months Ended September 30, 2018 | ||||||||||||||||||||
Parent Companies | Subsidiary | Non-Guarantor | Consolidated JMP | |||||||||||||||||
and Guarantors | Issuer | Subsidiaries | Eliminations | Group LLC | ||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 11,080 | $ | 9,608 | $ | 14,341 | $ | (27,074 | ) | $ | 7,955 | |||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Purchases of fixed assets | - | - | (877 | ) | - | (877 | ) | |||||||||||||
Purchases of other investments | (5,460 | ) | (430 | ) | (88 | ) | 4,453 | (1,525 | ) | |||||||||||
Sales or distributions from other investments | 13,363 | 448 | 4,549 | (4,411 | ) | 13,949 | ||||||||||||||
Funding of loans collateralizing asset-backed securities issued | - | - | (307,808 | ) | - | (307,808 | ) | |||||||||||||
Funding of loans held for investment | (664 | ) | - | (311,425 | ) | - | (312,089 | ) | ||||||||||||
Sale, payoff and principal receipts of loans collateralizing asset-backed securities issued | (15 | ) | - | 268,254 | - | 268,239 | ||||||||||||||
Sale, payoff and principal receipts on loans held for investment | 1,614 | - | 25,112 | - | 26,726 | |||||||||||||||
Investment in subsidiary | 35,711 | (5,550 | ) | - | (30,161 | ) | - | |||||||||||||
Net cash provided by (used in) investing activities | $ | 44,549 | (5,532 | ) | (322,283 | ) | (30,119 | ) | (313,385 | ) | ||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Repayment on bonds payable | - | (9,980 | ) | - | - | (9,980 | ) | |||||||||||||
Proceeds from issuance of repurchase agreement | 3,878 | - | - | - | 3,878 | |||||||||||||||
Proceeds from drawdowns on CLO warehouse facility | - | - | 263,750 | - | 263,750 | |||||||||||||||
Repayments on CLO V warehouse facility | - | - | (325,000 | ) | - | (325,000 | ) | |||||||||||||
Proceeds from sale of note payable to affiliate | - | - | 829 | - | 829 | |||||||||||||||
Payments of debt issuance costs | - | (203 | ) | (1,715 | ) | 21 | (1,897 | ) | ||||||||||||
Repayment of asset-backed securities issued | (4,453 | ) | - | (327,647 | ) | - | (332,100 | ) | ||||||||||||
Repayment of notes payable | (10,000 | ) | - | - | 10,000 | - | ||||||||||||||
Repayment of Repurchase Agreement | (3,878 | ) | - | - | - | (3,878 | ) | |||||||||||||
Proceeds from issuance of asset-backed securities issued | - | - | 699,107 | - | 699,107 | |||||||||||||||
Reissuance of asset-back securities | 4,411 | - | 42 | - | 4,453 | |||||||||||||||
Distributions and distribution equivalents paid on common shares and RSUs | (5,906 | ) | - | - | - | (5,906 | ) | |||||||||||||
Capital contributions of nonredeemable non-controlling interest holders | - | - | 449 | - | 449 | |||||||||||||||
Purchases of common shares for treasury | (2,309 | ) | - | - | - | (2,309 | ) | |||||||||||||
Purchase of subsidiary shares from non-controlling interest holders | (656 | ) | - | 656 | - | - | ||||||||||||||
Distributions to non-controlling interest shareholders | (1,418 | ) | - | (109 | ) | - | (1,527 | ) | ||||||||||||
Employee taxes paid on shares withheld for tax-withholding purposes | (31 | ) | - | - | - | (31 | ) | |||||||||||||
Capital contributions of parent | (42,236 | ) | 7,107 | (12,043 | ) | 47,172 | - | |||||||||||||
Net cash provided by (used in) financing activities | $ | (62,598 | ) | $ | (3,076 | ) | $ | 298,319 | $ | 57,193 | $ | 289,838 | ||||||||
Net increase (decrease) in cash and cash equivalents | (6,969 | ) | 1,000 | (9,623 | ) | - | (15,592 | ) | ||||||||||||
Cash, cash equivalents and restricted cash, beginning of period | 13,632 | 6,290 | 117,399 | - | 137,321 | |||||||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 6,663 | $ | 7,290 | $ | 107,776 | $ | - | $ | 121,729 |
2624. Subsequent Events
On October 23, 2019,January 30, 2020, the spread of novel coronavirus (“COVID-19”) was declared a Public Health Emergency of International Concern by the World Health Organization (“WHO”). Subsequently, on March 11, 2020, WHO characterized the COVID-19 outbreak as a pandemic.
The Company repaid $9.0 millionbegan seeing the impact of the outstanding balanceglobal COVID-19 pandemic on its business in early March 2020 and such impacts have continued after the quarter-end. The Company expects to continue to be impacted as the situation remains dynamic and subject to rapid and possibly material change. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.
The Company will continue to monitor the impact of COVID-19, but at the date of this report it is too early to determine the full impact this pandemic may have on the revolving line of credit with CNB at JMP Holding.
On November 4, 2019, global financial markets and the overall economy. Should this emerging macro-economic risk continue for an extended period, there could be an adverse material financial impact to the Company’s boardbusinesses, including a material reduction in revenue, fair value of directors declared cash distributionsfinancial instruments, and its results of $0.04 per share for the third quarter of 2019. The distribution is payable on November 29, 2019, to shareholders of record as of November 15, 2019.
operations.
ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited consolidated financial statements and the related notes included elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the MD&A for the fiscal year ended December 31, 20182019 contained in our Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 30, 2020 (the “Annual Report”), as well as the consolidated financial statements and notes contained therein.
Cautionary Statement Regarding Forward-Looking Statements
This MD&A and other sections of this Form 10-Q (the “Quarterly Report”) contain forward looking statements. We make forward-looking statements, as defined by the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and in some cases you can identify these statements by forward-looking words such as “if,” “shall,” “may,” “might,” “will likely result,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “intend,” “goal,” “objective,” “predict,” “potential” or “continue,” the negative of these terms, and other comparable terminology. These forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events that we believe to be reasonable. There are or may be important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the historical or future results, level of activity, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption “Risk Factors” in our Annual Report. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. We undertake no duty to update any of these forward-looking statements after the date of filing of this Quarterly Report to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law.
JMP Group LLC, together with its subsidiaries (collectively, the “Company”, “we”, or “us”), is a diversified capital markets firm headquartered in San Francisco, California. We have a diversified business model with a focus on small and middle-market companies and provide:
investment banking services, including corporate finance, mergers and acquisitions and other strategic advisory services, to corporate clients;
sales and trading and related securities brokerage services to institutional investors;
equity research coverage of fourthree target industries;
asset management products and services to institutional investors, high net-worth individuals and for our own account; and
management of collateralized loan obligations (through March 19, 2019) and a specialty finance company.
Impact of the COVID-19 Pandemic
Prior to the spread of the COVID-19 pandemic, we experienced growth trends in the first quarter of 2020, driven by investment banking momentum that continued from the fourth quarter of 2019, until the U.S. equities market saw sharp declines and extreme volatility in March 2020 in reaction to the COVID-19 pandemic.
Consequently, investment banking transactions expected to close in March were pushed out into the future, postponing revenues that otherwise would have been recognized in the first quarter. On the other hand, in the first quarter we experienced a material increase in our institutional equities business, as brokerage clients turned to us for insight into an extraordinarily challenging market environment.
Due to the dramatic market volatility as a result of the COVID-19 pandemic, there was a significant decline in the fair value of our CLO debt securities and we recognized a significant unrealized loss in the first quarter of 2020. We expect that the valuation of our CLO debt securities will remain volatile until the depth and duration of the current recession is better understood. While not nearly as significant, we recognized unrealized losses on other marketable securities, driven by lower market prices.
At this time, much of the country remains locked down. Fortunately, the nature of our business allows us to successfully conduct investment banking, trading, and asset management activities, even though our employees have been working remotely since mid-March. As with most market dislocations, buyers and sellers need some time to adjust to the new environment, which can especially delay strategic advisory transactions and sometimes leads to reduced outcomes. Additionally, companies looking toward IPOs or follow-on offerings will ordinarily postpone their plans until market volatility normalizes. While we continue to be actively engaged with our clients and customers in finding the best available opportunities and solutions, we expect that delayed closings will weigh on investment banking revenues for the second quarter and beyond.
An economic recession could have a material adverse effect on our business, financial condition, results of operations, or cash flows. We are closely monitoring the status of the COVID-19 pandemic and its impact on our business and the economy and capital markets globally. The unprecedented amount of Federal stimulus spending targeted at employees of small businesses, strategically important industries, and healthcare, may help stabilize the U.S. economy and capital markets. However, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our business in the second quarter and beyond.
Deconsolidation of the CLOs and JMPCA in 2019
On January 17, 2019, the non-call period of JMP Credit Advisors CLO III(R) Ltd. (“CLO III”) expired, which resulted in a change in the entity with the control over the most significant activities of the variable interest entity (“VIE”). The expiration of the non-call period resulted in the Company losing control over the most significant activities of CLO III. The Company deconsolidated CLO III as of January 17, 2019. The Company continues to hold approximately 47% of the outstanding junior subordinated notes of CLO III and the Company accounts for its ownership of the CLO III subordinated notes as an investment in a CLO debt security and will recognize interest income based on the effective yield method.security. The Company recognized a gain of $1.6 million as revenue from principal transactions on the deconsolidation of CLO III for the nine monthsyear ended September 30, 2019.December 31, 2019.
On March 19, 2019, the Company sold a 50.1% equity interest in JMP Credit Advisors LLC ("JMPCA"(“JMPCA”) to Medalist Partners LP (“Medalist”), an alternative asset management firm specializing in structured credit and asset-backed lending, and a 4.9% interest to management employees of JMPCA. JMP Holding LLC, a wholly-owned subsidiary of the Company, retained 45.0% of the equity interest in JMPCA. Due to the transactionThe sale of JMPCA went throughwas considered a reconsideration event as defined in Accounting Standard Codification (“ASC”) 810, Consolidation, which requires a new consolidation analysis, and the Company determined that JMPCA is a VIE after the transaction date. The Company determined that we are not the primary beneficiary of JMPCA as we are not the party with the power to direct the most significant activities of JMPCA. As the Company was determined to not be the primary beneficiary, the Company deconsolidated JMPCA as of the date of sale. As the Company still retains 45.0% of the equity interest of JMPCA and has significant influence, the Company has determined that it will account for its retained interest as an equity method investment after the date of deconsolidation, however; the Company has made the election to use the fair value option to account for the investment. The Company received a cash payment of $0.3 million in consideration for the limited liability company interest and recorded a gain of $3.4 million on deconsolidation as revenue from principal transactions. As a result of the transaction, JMPCA has been renamed Medalist Partners Corporate Finance LLC. The transaction agreement also requiresrequired Medalist to provide additional capital to purchase an equity interest in JMP Credit Advisors CLO VI Long-Term Warehouse Ltd (the “CLO VI warehouse”) to finance the acquisition of broadly syndicated corporate loans, which resulted in Medalist related entities purchasing approximately 66% of the outstanding equity interests of JMP Credit Advisorsthe CLO VI Ltd ("CLO VI").warehouse. The Company will receive a portion of the subordinated management fees from the CLOs JMPCA manages.managed as of the date of the sale. After the sale, JMPCA was renamed Medalist Partners Corporate Finance LLC (“MPCF”).
After the sale of JMPCA, the Company concluded that it has lost the ability to direct the most significant activities of the following VIEs: JMP Credit Advisors CLO IV Ltd.Ltd (“CLO IV”), JMP Credit Advisors CLO V Ltd.Ltd (“CLO V”), and JMP Credit Advisors CLO VI Ltd. ("CLO VI") (collectively with CLO III, the “CLOs”) and alsoas a result, deconsolidated those the aforementionedCLOs as of March 19, 2019. The2019 (except CLO III which was deconsolidated on January 17, 2019). Previously the Company continues to hold 100% ofconcluded that it was the junior subordinated notesprimary beneficiary of CLO IV, and CLO V, and approximately 33%CLO VI through its control over JMPCA and its ownership of 100% of the equity interests of CLO VI. The Company owned 100% and 25% of the senior subordinated notes in CLO IV and CLO V, respectively, at the date of deconsolidation. The Company sold all of its senior subordinated notes in CLO IV and CLO V in May 2019. The Company accounts for its ownership of the subordinated notes as a beneficial interest in a debt security and accounts for its equity interests of CLO VI as an equity investment. The Company classifies the junior subordinated notes as available-for-sale securities and classified the senior subordinated notes as trading securities up until their sale.these CLOs. Collectively, the Company recognized a loss on the deconsolidation of CLO IV, CLO V, and CLO VI of $1.8 million and a loss of $0.1 million on the salein March 2019 in revenues from principal transactions. The Company continues to hold 100% of the seniorjunior subordinated notes of CLO IV and CLO V and accounts for the nine months ended September 30, 2019its ownership of these subordinated notes as an investment in revenues from principal transactions. On August 8, 2019, Medalist closed a refinancingdebt security and classifies them as available-for-sale securities. The Company owned approximately 33% of the asset-backed securities issued by CLO IV, which lowered the weighted average costequity interests of funds. The refinancing of CLO IV had no impact on the Company's accounting for the investment in the CLO IV debt securities includingVI warehouse as of December 31, 2019. In February 2020, MPCF completed the decision to deconsolidatesecuritization of Medalist Partners Corporate Finance CLO IV.VI Ltd upon which the related CLO VI warehouse was liquidated. The Company does not hold any subordinated notes of Medalist Partners Corporate Finance CLO VI Ltd.
The Election for JMP Group LLC to be Taxed as a C Corporation
Since January 2015, JMP Group LLC had been a publicly traded partnership and, as such, was taxed as a partnership, and not as a corporation, for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income.” On January 31, 2019, the Company filed an election with the U.S. Internal Revenue Service to be treated as a C corporation for tax purposes, rather than as a partnership, going forward. The election was approved and became retroactively effective as of January 1, 2019. As a partnership, the Company had only paid taxes on a few taxable corporate holding subsidiaries.
An entity taxed as a partnership generally does not incur any U.S. federal income tax liability, and any income, gains, losses or deductions are taken in by the owners of the partnership in computing their U.S. federal income tax liability, regardless of any distributions from the partnership. In contrast, an entity treated as a corporation for U.S. federal income tax purposes generally pays U.S. federal income tax on its taxable income as it is considered a taxable entity. For years beginning after December 31, 2017, the maximum U.S. federal tax rate imposed on the net income of corporations is 21%. This rate may be subject to change in the future. Owners of a corporate entity generally do not incur any U.S. federal income tax liability on any earnings of the corporation unless the corporation makes a distribution of cash or property. Any distributions paid from current or accumulated earnings are treated as dividends, and these "qualifying dividends" are generally taxed at a lower rate than the ordinary income tax rate. Any distributions in excess of current or accumulated earnings are treated as nontaxable returns of capital which reduce the owner's tax basis in the corporation. Any remaining excess is treated as capital gain. For corporate entities, as both the corporation and distributions from the corporation are taxed, there are two levels of potential tax on the income earned.
Components of Revenues
We derive revenues primarily from: fees from our investment banking business, net commissions from our sales and trading business, management fees and incentive fees from our asset management business, and interest income earned on collateralized loan obligations we manage.manage (through March 19, 2019). We also generate revenues from principal transactions, interest, dividends and other income.
Investment Banking
We earn investment banking revenues from underwriting securities offerings, arranging private capital markets transactions and providing advisory services in mergers and acquisitions and other strategic transactions.
Underwriting Revenues
We earn revenues from securities offerings in which we act as an underwriter, such as initial public offerings and follow-on equity offerings. Underwriting revenues include management fees, underwriting fees, selling concessions, and realized and unrealized net gains and losses on equity positions held in inventory for a period of time to facilitate the completion of certain underwritten offerings. We record underwriting revenues, gross of related syndicate expenses, on the trade date which is typically the date of pricing an offering (or the following day). The Company has determined that its performance obligations are completed and the related income is reasonably determinable on the trade date. In syndicated transactions, management estimates our share of transaction-related expenses incurred by the syndicate, and we recognize revenues gross of such expense. On final settlement by the lead manager, typically 90 days from the trade date of the transaction, we adjust these amounts to reflect the actual transaction-related expenses and our resulting underwriting fee. We receive a higher proportion of total fees in underwritten transactions in which we act as a lead manager.
Strategic Advisory Revenues
Our strategic advisory revenues primarily consist of success fees received upon the closing of mergers and acquisitions but also include retainer fees received when we are first engaged to provide advisory services. We also earn fees for related advisory work and other services, such as fairness opinions, valuation analyses, due diligence, and pre-transaction structuring advice. These revenues may be earned for providing services to either the buyer or the seller involved in a transaction. Depending on the nature of the engagement letter and the agreed upon services, customers may simultaneously receive and consume the benefits of services or services may culminate in the delivery of the advisory services at a point in time. The Company evaluates each contract individually and the performance obligations identified to determine if revenue should be recognized ratably over the term of the agreement or at a specific point in time. Any retainer fees received in connection with these agreements are individually evaluated and any unearned fees are deferred for revenue recognition.
Private Capital Markets and Other Revenues
We earn fees for private capital markets and other services in connection with transactions that are not underwritten, such as private placements of equity securities, private investments in public equity (“PIPE”) transactions and Rule 144A offerings. We record private placement revenues on the closing date of these transactions. Client reimbursements for costs associated for private placement fees are recorded gross within Investment banking and various expense captions, excluding compensation.
Since our investment banking revenues are generally recognized at the time of completion of a transaction or the services to be performed, these revenues typically vary between periods and may be affected considerably by the timing of the closing of significant transactions.
Brokerage Revenues
Our brokerage revenues include trading commissions paid by customers for purchases or sales of exchange-listed and over-the-counter equity securities. Commissions resulting from equity securities transactions executed on behalf of customers are recorded on a trade date basis. The Company believes that the performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to/from the customer. Brokerage revenues also include net trading gains and losses that result from market-making activities and from our commitment of capital to facilitate customer transactions. Our brokerage revenues may vary between periods, in part depending on commission rates, trading volumes and our ability to deliver equity research and other value-added services to our clients. The ability to execute trades electronically, through the internet and through other alternative trading systems, has increased pressure on trading commissions and spreads across our industry. We expect this trend toward alternative trading systems and the related pricing pressure in the brokerage business to continue. We are, to some extent, compensated through brokerage commissions for the equity research and other value-added services we deliver to our clients. These “soft dollar” practices have been the subject of discussion among regulators, the investment banking community and our sales and trading clients. In particular, commission sharing arrangements have been adopted by some large institutional investors. In these arrangements, an institutional investor concentrates its trading with fewer “execution” brokers and pays a fixed amount for execution, with a designated amount set aside for payments to other firms for research or other brokerage services. Accordingly, trading volume directed to us by investors that enter into such arrangements may be reduced, or eliminated, but we may be compensated for our research and sales efforts through allocations of the designated amounts. Depending on the extent to which we agree to this practice and depending on our ability to enter into arrangements on terms acceptable to us, this trend would likely impair the revenues and profitability of our brokerage business by negatively affecting both volumes and trading commissions.
Asset Management Fees
We earn asset management fees for managing a family of investment partnerships, including hedge funds, hedge funds of funds, private equity funds, real estate funds, a capital debt fund, as well as a publicly traded specialty finance company, Harvest Capital Credit Corporation ("HCC"(“HCC”). These fees include base management fees and incentive fees. Base management fees are generally determined by the fair value of the assets under management ("AUM"(“AUM”) or the aggregate capital commitment and the fee schedule for each fund or account. Incentive fees are based upon the investment performance of the funds or accounts. For most of our funds, incentive fees equate to a percentage of the excess investment return above a specified high-water mark or hurdle rate over a defined period of time. For private equity funds, incentive fees equate to a percentage of the realized gain from the disposition of each portfolio investment in which each investor participates, which we earn after returning contributions by an investor for a portfolio investment. Some of these incentive fees are subject to contingent repayments to investors or clawback and cannot be recognized until it is probable that there will not be a significant reversal of revenue. Any such fees earned are deferred for revenue recognition until the contingency is removed or the Company determines that it is not probable that a significant reversal of revenue will occur. Generally, we do not earn management fees calculated on the basis of average AUM.
As of September 30, 2019 the contractual base management fees earned from each of our investment funds or companies ranged between 1% and 2% of AUM or were between 1% and 2% of aggregate committed capital. The contractual incentive fees were generally 20%, subject to high-water marks, for the hedge funds; 5% to 20%, subject to high-water marks or a performance hurdle rate, for the hedge funds of funds; 20%, subject to high-water marks, for Harvest Growth Capital LLC (“HGC”) and Harvest Growth Capital II LLC (“HGC II”); 20%, subject to an 8% hurdle rate for real estate funds; and 30% for JMP Capital I LLC ("JMP Capital I"). Our asset management revenues are subject to fluctuations due to a variety of factors that are unpredictable, including the overall condition of the economy, the securities markets as a whole and our core sectors. These market and industry conditions can have a material effect on the inflows and outflows of AUM and on the performance of our asset management funds. For example, a significant portion of the performance-based or incentive fee revenues that we recognize are based on the value of securities held in the funds we manage. The value of these securities includes unrealized gains or losses that may change from one period to another.
The Company sold the general partnership interest in the Harvest Small Cap Partners ("HSCP") fund entities to a newly formed entity owned by the portfolio manager of the HSCP funds. The sale closed on December 31, 2018 upon which the Company's investment management contracts with the HSCP funds terminated. As a result, the Company's AUM decreased by $365.7 million on January 1, 2019. As part of the sale, the Company will receive a portion of the management and incentive fees generated by these funds over the next five years, subject to a limit on the total revenue share. The revenue share will be recognized as other income.
On March 19, 2019, the Company sold a 50.1% equity interest in JMPCA to Medalist, an alternative asset management firm specializing in structured credit and asset-backed lending, and a 4.9% interest to management employees of JMPCA. A wholly-owned subsidiary of the Company retains a 45.0% interest in JMPCA. Due to the sale of the majority of the equity interest and the loss of control over JMPCA, the Company deconsolidated JMPCA as of the date of sale and will no longer recognize asset management fees related to the CLOs. As a result of the transaction, JMPCA has been renamed Medalist Partners Corporate Finance LLC.
Prior to the sale of the majority equity interest in JMPCA, the asset management fees for the CLOs under management during the period consisted only of senior and subordinated base management fees. We recognized base management fees for the CLOs on a monthly basis over the period during which the collateral management services are performed. The base management fees for the CLOs were calculated as a percentage of the average aggregate collateral balances for a specified period. As we consolidated the CLOs, the management fees earned at JMPCA from the CLOs were eliminated on consolidation in accordance with GAAP. For the period from January 1, 2019 through January 17, 2019 (deconsolidation date) the contractual senior and subordinated base management fees earned from CLO III were 0.35% of the average aggregate collateral balance. The contractual senior and subordinated base management fees earned from CLO III were and 0.33% for the period from January 1, 2018 to February 20, 2018, and 0.35% for the period from February 21, 2018 to September 30, 2018 of the average aggregate collateral balance. For both the period from January 1, 2019 through March 19, 2019 (deconsolidation date) and for the nine months ended September 30, 2018, the contractual base and subordinated fees earned from CLO IV were 0.50% of the average aggregate collateral balance. For the nine months ended September 30, 2018, the contractual base and subordinated fees earned from CLO V warehouse portfolio were 1.0% of the average equity contributions. For the period from January 1, 2019 through March 19, 2019 (deconsolidation date) and for the nine months ended September 30, 2018 (from July 26, 2018) the contractual base and subordinated fees earned from CLO V were 0.50% of the average aggregate collateral balance. For the nine months ended September 30, 2019, the contractual base and subordinated fees earned from CLO VI warehouse portfolio were 1.0% of the average equity contributions.
The redemption provisions of our funds require at least 90 days’ advance notice. The redemption provisions do not apply to the CLOs.
The following tables present certain informationtable presents a summary of the Company’ s client assets under management with respect to the investment fundsassets managed by HCS, JMP Asset Management LLC ("JMPAM)(“JMPAM”), HCAP Advisors LLC ("(“HCAP Advisors"Advisors”), CLOs and assets managed by JMPCA (through March 19, 2019), and the Company's client assets under management:sponsored funds:
(In thousands) | Assets Under Management (1) at | Company's Share of Assets Under Management at | ||||||||||||||
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Funds Managed by HCS, JMPAM, or HCAP Advisors: | ||||||||||||||||
Hedge Funds: | ||||||||||||||||
Harvest Small Cap Partners (2) | $ | - | $ | 365,728 | $ | - | $ | - | ||||||||
Harvest Agriculture Select (3) | 75,687 | 68,591 | 201 | 490 | ||||||||||||
Private Equity Funds: | ||||||||||||||||
Harvest Growth Capital LLC | 23,495 | 20,189 | 1,001 | 876 | ||||||||||||
Harvest Growth Capital II LLC | 162,898 | 198,782 | 3,314 | 3,823 | ||||||||||||
Harvest Intrexon Enterprise Fund | 59,251 | 67,729 | 365 | 415 | ||||||||||||
JMP Realty Partners I | 35,213 | 39,782 | 2,832 | 2,832 | ||||||||||||
JMP Realty Partners II | 27,617 | - | 1,992 | - | ||||||||||||
Other | 23,793 | 20,924 | N/A | N/A | ||||||||||||
Funds of Funds: | ||||||||||||||||
JMP Masters Fund (4) | 2,037 | 2,371 | 4 | 5 | ||||||||||||
Capital or Private Debt Capital: | ||||||||||||||||
Harvest Capital Credit Corporation | 132,297 | 123,689 | N/A | N/A | ||||||||||||
JMP Capital I | 23,529 | 23,529 | 2,329 | 2,329 | ||||||||||||
HCS, JMPAM, and HCAP Advisors Totals | 565,817 | 931,314 | 12,038 | 10,770 | ||||||||||||
CLOs Managed by JMPCA: | ||||||||||||||||
CLO III (5) (6) | - | 360,086 | N/A | N/A | ||||||||||||
CLO IV (5) (6) | - | 450,594 | N/A | N/A | ||||||||||||
CLO V (5) (6) | - | 400,557 | N/A | N/A | ||||||||||||
CLO VI warehouse (5) (6) | - | 34,219 | N/A | N/A | ||||||||||||
JMPCA Totals | - | 1,245,456 | - | - | ||||||||||||
Assets Under Management by Sponsored Funds: (7) | ||||||||||||||||
CLOs and CLO warehouse | 1,443,237 | - | N/A | N/A | ||||||||||||
Other asset management funds | 3,753,208 | 3,448,725 | N/A | N/A | ||||||||||||
Sponsored Funds Totals | 5,196,445 | 3,448,725 | - | - | ||||||||||||
JMP Group LLC Totals | $ | 5,762,262 | $ | 5,625,495 | $ | 12,038 | $ | 10,770 |
(In thousands) | Client Assets Under Management at | |||||||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
Client Assets Managed by HCS, JMPAM, and HCAP Advisors (1) | $ | 549,140 | $ | 594,678 | ||||
Client Assets Under Management by Sponsored Funds (2) | 5,135,699 | 5,381,432 | ||||||
JMP Group LLC total client assets under management | $ | 5,684,839 | $ | 5,976,110 |
(1) | For |
(2) | |
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Sponsored funds are third-party asset managers in which the Company owns an economic interest. |
In thousands) | Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | ||||||||||||||||||||||
Company's Share of Change in Fair Value | Management Fee | Incentive Fee | Company's Share of Change in Fair Value | Management Fee | Incentive Fee | |||||||||||||||||||
Hedge Funds: | ||||||||||||||||||||||||
Harvest Small Cap Partners (1) | $ | - | $ | - | $ | - | $ | 19 | $ | 1,600 | $ | 16 | ||||||||||||
Harvest Agriculture Select (2) | (2 | ) | 193 | - | 7 | 206 | - | |||||||||||||||||
Private Equity Funds: | ||||||||||||||||||||||||
Harvest Growth Capital LLC | - | - | - | 61 | - | - | ||||||||||||||||||
Harvest Growth Capital II LLC | 5 | 83 | (3 | ) | 32 | 146 | - | |||||||||||||||||
Harvest Intrexon Enterprise Fund | 3 | 178 | - | (32 | ) | 176 | - | |||||||||||||||||
JMP Realty Partners I | 36 | 94 | 4 | (30 | ) | 89 | - | |||||||||||||||||
JMP Realty Partners II | (22 | ) | 79 | - | - | - | - | |||||||||||||||||
Other | - | 6 | - | - | 6 | - | ||||||||||||||||||
Funds of Funds: | ||||||||||||||||||||||||
JMP Masters Fund (3) | - | 5 | - | 1 | 6 | - | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Harvest Capital Credit Corporation (4) | N/A | 921 | - | N/A | 964 | 487 | ||||||||||||||||||
JMP Capital I | (29 | ) | 14 | 55 | - | 1 | - | |||||||||||||||||
CLOs and Other: | ||||||||||||||||||||||||
CLO III (5) (6) | N/A | - | N/A | N/A | 323 | N/A | ||||||||||||||||||
CLO IV (5) (6) | N/A | - | N/A | N/A | 575 | N/A | ||||||||||||||||||
CLO V Warehouse (5) (6) | N/A | - | N/A | N/A | 413 | N/A | ||||||||||||||||||
Totals | $ | (9 | ) | $ | 1,573 | $ | 56 | $ | 58 | $ | 4,505 | $ | 503 |
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(In thousands) | Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | ||||||||||||||||||||||
Company's Share of Change in Fair Value | Management Fee | Incentive Fee | Company's Share of Change in Fair Value | Management Fee | Incentive Fee | |||||||||||||||||||
Hedge Funds: | ||||||||||||||||||||||||
Harvest Small Cap Partners (1) | $ | - | $ | - | $ | - | $ | 32 | $ | 4,717 | $ | 5,318 | ||||||||||||
Harvest Agriculture Select (2) | 49 | 559 | - | (353 | ) | 662 | - | |||||||||||||||||
Private Equity Funds: | ||||||||||||||||||||||||
Harvest Growth Capital LLC | 161 | - | - | 170 | - | - | ||||||||||||||||||
Harvest Growth Capital II LLC | (7 | ) | 310 | 261 | 452 | 460 | - | |||||||||||||||||
Harvest Intrexon Enterprise Fund | (50 | ) | 532 | - | (98 | ) | 527 | - | ||||||||||||||||
JMP Realty Partners I | 540 | 293 | 484 | 29 | 268 | - | ||||||||||||||||||
JMP Realty Partners II | (22 | ) | 130 | - | - | - | - | |||||||||||||||||
Other | - | 19 | - | - | 23 | 80 | ||||||||||||||||||
Funds of Funds: | ||||||||||||||||||||||||
JMP Masters Fund (3) | - | 15 | - | 1 | 20 | - | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Harvest Capital Credit Corporation (4) | N/A | 2,657 | 6 | N/A | 2,945 | 487 | ||||||||||||||||||
JMP Capital I | (29 | ) | 41 | 158 | - | 12 | 96 | |||||||||||||||||
CLOs and Other: | ||||||||||||||||||||||||
CLO III (5) (6) | N/A | 271 | N/A | N/A | 913 | N/A | ||||||||||||||||||
CLO IV (5) (6) | N/A | 482 | N/A | N/A | 1,709 | N/A | ||||||||||||||||||
CLO V and CLO V warehouse (5) (6) | N/A | 428 | N/A | N/A | 617 | N/A | ||||||||||||||||||
CLO VI Warehouse (5) (6) | N/A | 13 | N/A | N/A | - | N/A | ||||||||||||||||||
Totals | $ | 642 | $ | 5,750 | $ | 909 | $ | 233 | $ | 12,873 | $ | 5,981 |
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Principal Transactions
Principal transaction revenues include net realized and unrealized gains and losses resulting from our principal investments in equity and other securities for our own account as well as equity-linked warrants received from certain investment banking clients and limited partner investments in private funds managed by third parties. Principal transaction revenues also include earnings, or losses, attributable to interests in investment partnerships managed by our asset management subsidiaries, HCS and JMPAM, which are recorded using the fair value option and the net asset value practical expedient, or are accounted for using the equity method of accounting. Revenues also included unrealized gains and losses on investments that elect the fair option and unrealized gains and losses on the deconsolidation of businesses and investments. In addition, our principal transaction revenues include unrealized gains or losses on an investment in an entity that acquires buildings and land for the purpose of holding, managing and selling the properties and also include unrealized gains or losses on the investments in other private companies.
Gain (Loss) on Sale, Payoff, and Mark-to-Market of Loans
Gain (loss) on sale, payoff, and mark-to-market of loans consists of gains and losses from the sale and payoff of loans collateralizing asset-backed securities ("ABS"(“ABS”)recognized prior to the deconsolidation of the CLOs in the first quarter of 2019. Gains are recorded when the proceeds exceed the carrying value of the loan.
Net Dividend Income
Net dividend income includes dividends from our investments offset by dividend expense resulting from short positions in our principal investment portfolio.
Other Income
Other income includes revenues from equity method investments, revenues from fee-sharing arrangements with our funds, contingent revenue from a sale of a general partnership, subordinated management fees earned on CLO investments, and fees earned to raise capital for third-party investment partnerships.
Interest Income
Interest income primarily consists of interest income earned on loans collateralizing ABS issued (through March 19, 2019), investments in CLO equity tranches, and loans held for investment. Interest income on loans is comprised of the stated coupon as a percentage of the face amount receivable as well as accretion of purchase discounts and deferred fees. Interest income is recorded on an accrual basis, in accordance with the terms of the respective loans, unless such loans are placed on non-accrual status. Interest on CLO debt securities are recognized in interest income using the effective yield method.
On January 17, 2019, the non-call period for CLO III expired and the Company lost the ability to direct the most significant activities of CLO III. As a result, the Company deconsolidated CLO III as of January 17, 2019 and ceased recognizing interest income on loans collateralizing asset-backed securities for CLO III as of the date of sale.
On March 19, 2019, the Company sold a total of 55.0% of the equity interest in JMPCA. Due to the sale of the majority of the equity interest and the loss of control over the CLO IV, CLO V, and the CLO VI warehouse, the Company deconsolidated these entities and ceased recognizing interest income on loans collateralizing asset-backed securities and loans held for investment underlying the CLO VI warehouse portfolio as of the date of sale for CLO IV, CLO V, and CLO VI.deconsolidation date. After deconsolidation of the CLOs, and the CLO VI warehouse, the Company accountedaccounts for its ownership of the subordinated notes of the CLOs as beneficial interests in debt securities and recorded interest income on those instruments using the effective-yield method.
Interest Expense
Interest expense primarily consists of interest expense related to ABS issued and CLO warehouse credit facilities (through March 19, 2019), Senior Notes, lines of credit, and notes payable, as well as the amortization of bond issuance costs. Interest expense on asset-backed securities is the stated coupon payable as a percentage of the principal amount. Interest expense is recorded on an accrual basis, in accordance with the terms of the respective debt instruments. Due to deconsolidation of the CLOs and the CLO VI warehouse in the first quarter of 2019, the Company ceased recording interest expense on asset-backed securities issued as of January 17, 2019 for CLO III and on March 19, 2019, for CLO IV, CLO V, and CLO VI warehouse.
LossGain (loss) on Repurchase, Reissuance, or Early Retirement of Debt
LossGain (loss) on repurchase, reissuance, or early retirement of debt primarily consists of gains recognized on repurchase of Senior Notes and losses incurred in the write-off of debt issuance costs related to Senior Notes or ABS issued that havehas been repurchased or retired sooner than the life of the instrument.
Provision for Loan Losses
Provision for loan losses includes the provision for losses recognized on our loan notes at JMP Investment Holdings LLC, JMP Capital LLC and JMP Group Inc., (collectively loans held for investment) and on loans collateralizing ABS in order to record the loans held for investment and ABS at their estimated net realizable value. We maintain an allowance for loan losses that is intended to estimate loan losses inherent in the loans held for investment’s and the CLO's loan portfolio. A provision for loan losses is charged to expense to establish the allowance for loan losses. The allowance for loan losses is maintained at a level, in the opinion of management, sufficient to offset estimated losses inherent in the loan portfolio as of the date of the financial statements. The appropriateness of the allowance and the allowance components are reviewed quarterly. Our estimate of each allowance component is based on observable information and on market and third-party data that we believe are reflective of the underlying loan losses being estimated. We employ internally developed and third-party estimation tools for measuring credit risk (loan ratings, probability of default, and exposure at default).
A specific reserve is provided for loans that are considered impaired. A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral securing the loan, if the loan is collateral-dependent, depending on the circumstances and our collection strategy. For loans deemed impaired at the date of acquisition, if there is a further decline in expected future cash flows, this reduction is recognized as a specific reserve in accordance with the guidance above. For those loans deemed impaired subsequent to the acquisition date, if the net realizable value is lower than the current carrying value, the carrying value is reduced, and the difference is booked as a provision for loan losses. If the total discount from unpaid principal balance to carrying value is larger than the expected loss at the date of assessment, no provision for loan losses is recognized.
Loans which are deemed to be uncollectible are charged off, and the charged-off amount is deducted from the allowance.
Due to the deconsolidation of the CLOs and the CLO VI warehouse in the first quarter of 2019, the Company ceased recording provisions for loan losses on the loans collateralizing ABS issued and the loans held for investment in the warehouse.
Components of Expenses
We classify our expenses as compensation and benefits; administration; brokerage, clearing and exchange fees; travel and business development; managed deal expenses, communications and technology; occupancy; professional fees, depreciation, and other. A significant portion of our expense base is variable, including compensation and benefits; brokerage, clearing and exchange fees; travel and business development; and communication and technology expenses.
Compensation and Benefits
Compensation and benefits is the largest component of our expenses and includes employees’ base pay, performance bonuses, sales commissions, related payroll taxes, equity-based compensation, and medical and benefits expenses, as well as expenses for contractors and temporary employees. Our employees receive a substantial portion of their compensation in the form of an individual, performance-based bonus. As is the widespread practice in our industry, we pay bonuses on an annual basis, and for senior professionals these bonuses typically make up a large portion of their total compensation. A portion of the performance-based bonuses paid to certain senior professionals is paid in the form of deferred compensation. Bonus payments may have a greater impact on our cash position and liquidity in the periods in which they are paid than would otherwise be reflected in our Consolidated Statements of Operations. We accrue for the estimated amount of these bonus payments ratably over the applicable service period.
Compensation is accrued with specific ratios of total compensation and benefits to total revenues applied to specific revenue categories, with adjustments made if, in management’s opinion, such adjustments are necessary and appropriate to maintain competitive compensation levels.
Administration
Administration expense primarily includes the cost of hosted conferences, non-capitalized systems and software expenditures, insurance, business tax (non-income), office supplies, recruiting, and regulatory fees.
Brokerage, Clearing and Exchange Fees
Brokerage, clearing and exchange fees include the cost of floor and electronic brokerage and execution, securities clearance, and exchange fees. Changes in brokerage, clearing and exchange fees fluctuate largely in line with the volume of our sales and trading activity.
Travel and Business Development
Travel and business development expense is netprimarily consists of expensescosts incurred traveling to client locations for the purposes of executing transactions or meeting potential new clients, travel for administrative functions, and other costs incurred in developing new business. Travel costs related to existing clients for mergers and acquisitions and underwriting deals are sometimes reimbursed by clients. Under the new revenue standard ASC 606, reimbursed costs are presented as revenue on the Consolidated Statements of Operations.
Managed Deal Expenses
Managed deal expenses primarily relate to costs incurred and/or allocated in the execution of investment banking transactions, including reimbursable costs. Under the new revenue standard ASC 606, reimbursed costs are presented as revenue on the Consolidated Statements of Operations.
Communications and Technology
Communications and technology expense primarily relates to the cost of communication and connectivity, information processing, and subscriptions to certain market data feeds and services.
Occupancy Expenses
Occupancy costs primarily include payments made under operating leases that are recognized on a straight-line basis over the period of the lease and the accretion of any lease incentives.
Professional Fees
Professional fees primarily relate to legal and accounting professional services.
Depreciation
Depreciation expenses include the straight-line amortization of purchases of certain furniture and fixtures, computer and office equipment, certain software costs, and leasehold improvements to allocate their depreciation amounts over their estimated useful life.
Other Expenses
Other operating expenses primarily include occupancy, depreciation, and CLO administration expense at JMP Investment Holdings.expense.
Income Taxes
Since January 2015, JMP Group LLC hadhas been a publicly traded partnership and, as such, washas been taxed as a partnership, and not as a corporation, for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income.” On January 31, 2019, the Company filed an election with the U.S. Internal Revenue Service to be treated as a C corporation for tax purposes, rather than a partnership, going forward. The election was approved and became retroactively effective as of January 1, 2019. As a partnership, the Company has only paid taxes on a few taxable corporate holding subsidiaries.
The Company recognizes deferred tax assets and liabilities in accordance with ASC 740, Income Taxes, which are determined based upon the temporary differences between the financial reporting and tax basis of the Company’s assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce the deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized. The Company does not have a valuation allowance as of March 31, 2020.
The Company records uncertain tax positions using a two-step process: (i) the Company determines whether it is more likely than not that each tax position will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more-likely-than not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than fifty percent likely to be realized upon ultimate settlement with the related tax authorityauthority.
The Company’s policy for recording interest and penalties associated with the tax audits or unrecognized tax benefits, if any, is to record such items as a component of income tax.
Non-controlling Interest
Non-controlling interest for the three months ended September 30, 2019March 31, 2020 includes the interest of third parties in HCS Strategic Investments LLC ("(“HCS SI"SI”) and HCAP Advisors. Non-controlling interest for the three months ended September 30, 2018March 31, 2019 includes the interest of third parties in CLO III HCS SI, and HCAP Advisors. Non-controlling interest for both the nine months ended September 30, 2019 and 2018 includes the interest of third parties in CLO III (through(through January 17, 2019), HCS SI, and HCAP Advisors, partially-owned subsidiaries consolidated in our financial statements. Advisors.
The Company currently manages several asset management funds, which are structured as limited partnerships, and is the general partner of each. The Company assesses whether the partnerships meet the definition of VIEs in accordance with ASC 810-10-15-14 and whether the Company qualifies as the primary beneficiary. Funds determined not to meet the definition of a VIE are considered voting interest entities, for which the rights of the limited partners are evaluated to determine if consolidation is necessary. Such guidance provides that the presumption that the general partner controls the limited partnership may be overcome if the limited partners have substantive kick-out rights.
The Company had determined CLO III to be a variable interest entity and identified itself as the primary beneficiary, based on its ability to direct activities of CLO III through its subsidiary manager, JMPCA, and its equity ownership. As of December 31, 2018 the Company’s ownership of unsecured subordinated notes was 46.7%. On January 17, 2019, the non-call period for CLO III expired and the Company lost the ability to direct the most significant activities of CLO III. As a result, the Company deconsolidated CLO III as of January 17, 2019 and ceased recognizing any non-controlling interest.
HCAP Advisors was formed on December 18, 2012. HCAP Advisors appointed JMP Holding LLC as its Manager effective May 1, 2013 and began offering investment advisory services. The Company owned a 51.0% equity interest in the entity until April 27, 2018 when the Company purchased an additional 18.4% of HCAP Advisors, equity from a non-controlling interest holder. As of April 27, 2018, the Company owns a 69.4% of equity interest in the entity. The Company was identified as the primary beneficiary, based on the ability to direct activities of HCAP Advisors as the Manager and its equity ownership.
HCS SI was formed on September 27, 2017. The purpose of HCS SI is to purchase, hold, and sell portfolio securities. On November 20, 2017, HCS SI made an investment in an investment advisor to purchase approximately 25.0% of the issued and outstanding equity securities. On January 9, 2018, a debt fund purchased 30% of the investment series in the investment advisor for $0.4 million and the Company's ownership percentage of HCS SI was reduced to 70%.
Results of Operations
The following table sets forth our results of operations for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018, and is not necessarily indicative of the results to be expected for any future period.
(In thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | Three Month Change From 2018 to 2019 | Nine Month Change From 2018 to 2019 | Three Months Ended March 31, | Three Month Change From 2019 to 2020 | ||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | $ | % | $ | % | 2020 | 2019 | $ | % | |||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment banking | $ | 15,228 | $ | 21,095 | $ | 44,843 | $ | 70,319 | $ | (5,867 | ) | -27.8 | % | $ | (25,476 | ) | -36.2 | % | $ | 14,625 | $ | 11,879 | $ | 2,746 | 23.1 | % | ||||||||||||||||||||||
Brokerage | 3,968 | 4,676 | 13,160 | 14,787 | (708 | ) | -15.1 | % | (1,627 | ) | -11.0 | % | 4,187 | 4,535 | (348 | ) | -7.7 | % | ||||||||||||||||||||||||||||||
Asset management fees | 1,628 | 3,702 | 5,685 | 15,505 | (2,074 | ) | -56.0 | % | (9,820 | ) | -63.3 | % | 1,716 | 1,703 | 13 | 0.8 | % | |||||||||||||||||||||||||||||||
Principal transactions | (340 | ) | 469 | 6,371 | (1,467 | ) | (809 | ) | -172.5 | % | 7,838 | -534.3 | % | (17,552 | ) | 5,288 | (22,840 | ) | -431.9 | % | ||||||||||||||||||||||||||||
Loss on sale, payoff and mark-to-market of loans | - | (556 | ) | (38 | ) | (888 | ) | 556 | -100.0 | % | 850 | -95.7 | % | - | (17 | ) | 17 | -100.0 | % | |||||||||||||||||||||||||||||
Net dividend income | 279 | 320 | 868 | 935 | (41 | ) | -12.8 | % | (67 | ) | -7.2 | % | 227 | 296 | (69 | ) | -23.3 | % | ||||||||||||||||||||||||||||||
Other income | 759 | 306 | 1,517 | 666 | 453 | 148.0 | % | 851 | 127.8 | % | 935 | (35 | ) | 970 | -2771.4 | % | ||||||||||||||||||||||||||||||||
Non-interest revenues | 21,522 | 30,012 | 72,406 | 99,857 | (8,490 | ) | -28.3 | % | (27,451 | ) | -27.5 | % | 4,138 | 23,649 | (19,511 | ) | -82.5 | % | ||||||||||||||||||||||||||||||
Interest income | 2,328 | 18,652 | 19,391 | 47,031 | (16,324 | ) | -87.5 | % | (27,640 | ) | -58.8 | % | 2,214 | 14,291 | (12,077 | ) | -84.5 | % | ||||||||||||||||||||||||||||||
Interest expense | (1,930 | ) | (13,789 | ) | (14,642 | ) | (35,125 | ) | 11,859 | -86.0 | % | 20,483 | -58.3 | % | (1,782 | ) | (10,773 | ) | 8,991 | -83.5 | % | |||||||||||||||||||||||||||
Net interest income | 398 | 4,863 | 4,749 | 11,906 | (4,465 | ) | -91.8 | % | (7,157 | ) | -60.1 | % | 432 | 3,518 | (3,086 | ) | -87.7 | % | ||||||||||||||||||||||||||||||
Loss on repurchase, reissuance, or early retirement of debt | (458 | ) | (170 | ) | (458 | ) | (2,838 | ) | (288 | ) | 169.4 | % | 2,380 | -83.9 | % | |||||||||||||||||||||||||||||||||
Provision for loan losses | (438 | ) | (1,454 | ) | (438 | ) | (4,199 | ) | 1,016 | -69.9 | % | 3,761 | -89.6 | % | ||||||||||||||||||||||||||||||||||
Total net revenues after provision for loan losses | 21,024 | 33,251 | 76,259 | 104,726 | (12,227 | ) | -36.8 | % | (28,467 | ) | -27.2 | % | ||||||||||||||||||||||||||||||||||||
Gain on repurchase, reissuance, or early retirement of debt | 697 | - | 697 | N/A | ||||||||||||||||||||||||||||||||||||||||||||
Total net revenues | 5,267 | 27,167 | (21,900 | ) | -80.6 | % | ||||||||||||||||||||||||||||||||||||||||||
Non-interest expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | 17,506 | 22,671 | 54,673 | 76,070 | (5,165 | ) | -22.8 | % | (21,397 | ) | -28.1 | % | 16,213 | 17,222 | (1,009 | ) | -5.9 | % | ||||||||||||||||||||||||||||||
Administration | 2,301 | 2,302 | 6,978 | 7,246 | (1 | ) | 0.0 | % | (268 | ) | -3.7 | % | 2,222 | 1,929 | 293 | 15.2 | % | |||||||||||||||||||||||||||||||
Brokerage, clearing and exchange fees | 617 | 808 | 2,051 | 2,373 | (191 | ) | -23.6 | % | (322 | ) | -13.6 | % | 634 | 701 | (67 | ) | -9.6 | % | ||||||||||||||||||||||||||||||
Travel and business development | 1,263 | 1,080 | 3,631 | 3,236 | 183 | 16.9 | % | 395 | 12.2 | % | 922 | 1,021 | (99 | ) | -9.7 | % | ||||||||||||||||||||||||||||||||
Managed deal expenses | 685 | 614 | 2,552 | 4,528 | 71 | 11.6 | % | (1,976 | ) | -43.6 | % | 588 | 533 | 55 | 10.3 | % | ||||||||||||||||||||||||||||||||
Communication and technology | 1,061 | 1,040 | 3,241 | 3,149 | 21 | 2.0 | % | 92 | 2.9 | % | ||||||||||||||||||||||||||||||||||||||
Communications and technology | 1,129 | 1,053 | 76 | 7.2 | % | |||||||||||||||||||||||||||||||||||||||||||
Occupancy | 1,196 | 1,172 | 4,028 | 3,432 | 24 | 2.0 | % | 596 | 17.4 | % | 1,199 | 1,423 | (224 | ) | -15.7 | % | ||||||||||||||||||||||||||||||||
Professional fees | 1,236 | 1,272 | 3,513 | 4,315 | (36 | ) | -2.8 | % | (802 | ) | -18.6 | % | 890 | 1,456 | (566 | ) | -38.9 | % | ||||||||||||||||||||||||||||||
Depreciation | 307 | 285 | 915 | 836 | 22 | 7.7 | % | 79 | 9.4 | % | 548 | 297 | 251 | 84.5 | % | |||||||||||||||||||||||||||||||||
Other | 200 | 369 | 700 | 1,532 | (169 | ) | -45.8 | % | (832 | ) | -54.3 | % | - | 495 | (495 | ) | -100.0 | % | ||||||||||||||||||||||||||||||
Total non-interest expenses | 26,372 | 31,613 | 82,282 | 106,717 | (5,241 | ) | -16.6 | % | (24,435 | ) | -22.9 | % | 24,345 | 26,130 | (1,785 | ) | -6.8 | % | ||||||||||||||||||||||||||||||
Income (loss) before income tax expense | (5,348 | ) | 1,638 | (6,023 | ) | (1,991 | ) | (6,986 | ) | -426.5 | % | (4,032 | ) | 202.5 | % | |||||||||||||||||||||||||||||||||
Income tax expense (benefit) | (1,220 | ) | 527 | (5,839 | ) | (146 | ) | (1,747 | ) | -331.5 | % | (5,693 | ) | 3899.3 | % | |||||||||||||||||||||||||||||||||
Net income (loss) before income taxes | (19,078 | ) | 1,037 | (20,115 | ) | -1939.7 | % | |||||||||||||||||||||||||||||||||||||||||
Income tax benefit | (7,239 | ) | (4,102 | ) | (3,137 | ) | 76.5 | % | ||||||||||||||||||||||||||||||||||||||||
Net income (loss) | (4,128 | ) | 1,111 | (184 | ) | (1,845 | ) | (5,239 | ) | -471.6 | % | 1,661 | -90.0 | % | (11,839 | ) | 5,139 | (16,978 | ) | -330.4 | % | |||||||||||||||||||||||||||
Less: Net income (loss) attributable to non-controlling interest | (67 | ) | 823 | (80 | ) | 138 | (890 | ) | -108.1 | % | (218 | ) | -158.0 | % | (91 | ) | 70 | (161 | ) | -230.0 | % | |||||||||||||||||||||||||||
Net income (loss) attributable to JMP Group LLC | $ | (4,061 | ) | $ | 288 | $ | (104 | ) | $ | (1,983 | ) | $ | (4,349 | ) | -1510.1 | % | $ | 1,879 | -94.8 | % | $ | (11,748 | ) | $ | 5,069 | $ | (16,817 | ) | -331.8 | % |
Operating Net Income (Non-GAAP Financial Measure)
Management uses Operating Net Income as a key, non-GAAP metric when evaluating the performance of JMP Group LLC’s core business strategy and ongoing operations, as management believes that this metric appropriately illustrates the operating results of JMP Group LLC’s core operations and business activities. Operating Net Income is derived from our segment reported results and is the measure of segment profitability on an after-tax basis used by management to evaluate our performance. This non-GAAP measure is presented to enhance investors’ overall understanding of the Company’s current financial performance. Additionally, management believes that Operating Net Income is a useful measure because it allows for a better evaluation of the performance of JMP Group LLC’s ongoing business and facilitates a meaningful comparison of the Company’s results in a given period to those in prior and future periods.
However, Operating Net Income should not be considered a substitute for results that are presented in a manner consistent with GAAP. A limitation of the non-GAAP financial measures presented is that, unless otherwise indicated, the adjustments concern gains, losses or expenses that JMP Group LLC generally expects to continue to recognize, and the adjustment of these items should not always be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring. Therefore, management believes that both JMP Group LLC’s GAAP measures of its financial performance and the respective non-GAAP measures should be considered together. Operating Net Income may not be comparable to a similarly titled measure presented by other companies.
Operating Net Income is a non-GAAP financial measure that adjusts the Company’s GAAP net income as follows:
(i) | reverses |
(ii) | recognizes 100% of the cost of deferred compensation in the period for which such compensation was awarded, instead of recognizing such cost over the vesting period as required under GAAP, in order to match compensation expense with the actual period upon which the compensation was based; |
(iii) | reverses amortization expense related to an intangible asset resulting from the repurchase of a portion of the equity of CLO III prior to |
(iv) | unrealized gains or losses on commercial real estate investments, adjusted for non-cash expenditures, including depreciation and amortization; |
(v) | reverses net unrealized gains and losses on strategic equity investments and warrant positions; |
(vi) |
(vii) | reverses the one-time transaction costs related to the refinancing or repurchase of the debt; |
(viii) |
|
|
| presents revenues and expenses on a basis that deconsolidates the CLOs (through March 19, 2019) and removes any non-controlling interest in consolidated but less than wholly owned subsidiaries. |
Discussed below is our Operating Net Income by segment. This information is reflected in a manner utilized by management to assess the financial operations of the Company'sCompany’s various business lines.
Three Months Ended September 30, 2019 | Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Broker-Dealer | Asset Management | Corporate Costs | Eliminations | Total Segments | Broker-Dealer | Asset Management | Corporate Costs | Eliminations | Total Segments | ||||||||||||||||||||||||||||||||||||||||||||||
Asset Management Fee Income | Investment Income | Total Asset Management | Asset Management Fee Income | Investment Income | Total Asset Management | |||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment banking | $ | 15,228 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 15,228 | $ | 14,625 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 14,625 | ||||||||||||||||||||||||||||
Brokerage | 3,968 | - | - | - | - | - | 3,968 | 4,187 | - | - | - | - | - | 4,187 | ||||||||||||||||||||||||||||||||||||||||||
Asset management related fees | 6 | 1,795 | 234 | 2,029 | 76 | (47 | ) | 2,064 | 152 | 1,903 | 333 | 2,236 | - | (45 | ) | 2,343 | ||||||||||||||||||||||||||||||||||||||||
Principal transactions | - | - | 883 | 883 | - | - | 883 | - | - | 81 | 81 | - | - | 81 | ||||||||||||||||||||||||||||||||||||||||||
Net dividend income | - | - | 317 | 317 | - | - | 317 | - | - | 256 | 256 | - | - | 256 | ||||||||||||||||||||||||||||||||||||||||||
Net interest income | - | - | 563 | 563 | - | - | 563 | - | - | 458 | 458 | - | - | 458 | ||||||||||||||||||||||||||||||||||||||||||
Provision for loan losses | - | - | (438 | ) | (438 | ) | - | - | (438 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Adjusted net revenues | 19,202 | 1,795 | 1,559 | 3,354 | 76 | (47 | ) | 22,585 | ||||||||||||||||||||||||||||||||||||||||||||||||
Gain on repurchase, reissuance or early retirement of debt | - | - | 786 | 786 | - | - | 786 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total net revenues | 18,964 | 1,903 | 1,914 | 3,817 | - | (45 | ) | 22,736 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest expenses | 20,677 | 2,101 | 334 | 2,435 | 2,172 | (47 | ) | 25,237 | 19,201 | 2,362 | 151 | 2,513 | 1,792 | (45 | ) | 23,461 | ||||||||||||||||||||||||||||||||||||||||
Operating pre-tax net income (loss) | (1,475 | ) | (306 | ) | 1,225 | 919 | (2,096 | ) | - | (2,652 | ) | (237 | ) | (459 | ) | 1,763 | 1,304 | (1,792 | ) | - | (725 | ) | ||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | (383 | ) | (79 | ) | 318 | 239 | (545 | ) | - | (689 | ) | (62 | ) | (120 | ) | 459 | 339 | (465 | ) | - | (188 | ) | ||||||||||||||||||||||||||||||||||
Operating net income (loss) | $ | (1,092 | ) | $ | (227 | ) | $ | 907 | $ | 680 | $ | (1,551 | ) | $ | - | $ | (1,963 | ) | $ | (175 | ) | $ | (339 | ) | $ | 1,304 | $ | 965 | $ | (1,327 | ) | $ | - | $ | (537 | ) |
Three Months Ended September 30, 2018 | ||||||||||||||||||||||||||||
(In thousands) | Broker-Dealer | Asset Management | Corporate Costs | Eliminations | Total Segments | |||||||||||||||||||||||
Asset Management Fee Income | Investment Income | Total Asset Management | ||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Investment banking | $ | 21,095 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 21,095 | ||||||||||||||
Brokerage | 4,676 | - | - | - | - | - | 4,676 | |||||||||||||||||||||
Asset management related fees | 6 | 4,878 | 16 | 4,894 | - | (1,205 | ) | 3,695 | ||||||||||||||||||||
Principal transactions | - | - | 377 | 377 | - | - | 377 | |||||||||||||||||||||
Loss on sale, payoff, and mark-to-market of loans | - | - | (495 | ) | (495 | ) | - | - | (495 | ) | ||||||||||||||||||
Net dividend income | - | - | 339 | 339 | - | - | 339 | |||||||||||||||||||||
Net interest income | - | - | 3,715 | 3,715 | - | - | 3,715 | |||||||||||||||||||||
Provision for loan losses | - | - | (470 | ) | (470 | ) | - | - | (470 | ) | ||||||||||||||||||
Adjusted net revenues | 25,777 | 4,878 | 3,482 | 8,360 | - | (1,205 | ) | 32,932 | ||||||||||||||||||||
Non-interest expenses | ||||||||||||||||||||||||||||
Non-interest expenses | 23,202 | 4,794 | 1,535 | 6,329 | 2,688 | (1,205 | ) | 31,014 | ||||||||||||||||||||
Operating pre-tax net income (loss) | 2,575 | 84 | 1,947 | 2,031 | (2,688 | ) | - | 1,918 | ||||||||||||||||||||
Income tax expense (benefit) | 670 | 23 | (153 | ) | (130 | ) | (363 | ) | - | 177 | ||||||||||||||||||
Operating net income (loss) | $ | 1,905 | $ | 61 | $ | 2,100 | $ | 2,161 | $ | (2,325 | ) | $ | - | $ | 1,741 |
Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||
(In thousands) | Broker-Dealer | Asset Management | Corporate Costs | Eliminations | Total Segments | |||||||||||||||||||||||
Asset Management Fee Income | Investment Income | Total Asset Management | ||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Investment banking | $ | 44,843 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 44,843 | ||||||||||||||
Brokerage | 13,160 | - | - | - | - | - | 13,160 | |||||||||||||||||||||
Asset management related fees | 18 | 6,692 | 603 | 7,295 | 76 | (1,095 | ) | 6,294 | ||||||||||||||||||||
Principal transactions | - | - | 7,762 | 7,762 | - | - | 7,762 | |||||||||||||||||||||
Loss on sale, payoff, and mark-to-market of loans | - | - | (39 | ) | (39 | ) | - | - | (39 | ) | ||||||||||||||||||
Net dividend income | - | - | 983 | 983 | - | - | 983 | |||||||||||||||||||||
Net interest income | - | - | 4,702 | 4,702 | - | - | 4,702 | |||||||||||||||||||||
Provision for loan losses | - | - | (438 | ) | (438 | ) | - | - | (438 | ) | ||||||||||||||||||
Adjusted net revenues | 58,021 | 6,692 | 13,573 | 20,265 | 76 | (1,095 | ) | 77,267 | ||||||||||||||||||||
Non-interest expenses | ||||||||||||||||||||||||||||
Non-interest expenses | 62,035 | 8,074 | 3,378 | 11,452 | 6,214 | (1,095 | ) | 78,606 | ||||||||||||||||||||
Operating pre-tax net income (loss) | (4,014 | ) | (1,382 | ) | 10,195 | 8,813 | (6,138 | ) | - | (1,339 | ) | |||||||||||||||||
Income tax expense (benefit) | (1,043 | ) | (360 | ) | 2,650 | 2,290 | (1,595 | ) | - | (348 | ) | |||||||||||||||||
Operating net income (loss) | $ | (2,971 | ) | $ | (1,022 | ) | $ | 7,545 | $ | 6,523 | $ | (4,543 | ) | $ | - | $ | (991 | ) |
Nine Months Ended September 30, 2018 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Broker-Dealer | Asset Management | Corporate Costs | Eliminations | Total Segments | Broker-Dealer | Asset Management | Corporate Costs | Eliminations | Total Segments | ||||||||||||||||||||||||||||||||||||||||||||||
Asset Management Fee Income | Investment Income | Total Asset Management | Asset Management Fee Income | Investment Income | Total Asset Management | |||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment banking | $ | 70,319 | $ | - | $ | - | $ | - | $ | - | $ | 1 | $ | 70,320 | $ | 11,879 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 11,879 | ||||||||||||||||||||||||||||
Brokerage | 14,787 | - | - | - | - | - | 14,787 | 4,535 | - | - | - | - | - | 4,535 | ||||||||||||||||||||||||||||||||||||||||||
Asset management related fees | 16 | 13,439 | 5,318 | 18,757 | - | (3,354 | ) | 15,419 | 6 | 2,361 | 46 | 2,407 | - | (1,014 | ) | 1,399 | ||||||||||||||||||||||||||||||||||||||||
Principal transactions | - | - | 498 | 498 | - | - | 498 | - | - | 5,387 | 5,387 | - | - | 5,387 | ||||||||||||||||||||||||||||||||||||||||||
Loss on sale, payoff, and mark-to-market of loans | - | - | (859 | ) | (859 | ) | - | - | (859 | ) | - | - | (17 | ) | (17 | ) | - | - | (17 | ) | ||||||||||||||||||||||||||||||||||||
Net dividend income | - | - | 1,004 | 1,004 | - | - | 1,004 | - | - | 335 | 335 | - | - | 335 | ||||||||||||||||||||||||||||||||||||||||||
Net interest income | - | - | 8,769 | 8,769 | - | - | 8,769 | - | - | 3,322 | 3,322 | - | - | 3,322 | ||||||||||||||||||||||||||||||||||||||||||
Loss on repurchase, reissuance, or early retirement of debt | - | - | (42 | ) | (42 | ) | - | - | (42 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Provision for loan losses | - | - | (1,400 | ) | (1,400 | ) | - | - | (1,400 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Adjusted net revenues | 85,122 | 13,439 | 13,288 | 26,727 | - | (3,353 | ) | 108,496 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total net revenues | 16,420 | 2,361 | 9,073 | 11,434 | - | (1,014 | ) | 26,840 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-interest expenses | 76,528 | 14,570 | 9,096 | 23,666 | 7,519 | (3,354 | ) | 104,359 | 17,900 | 3,090 | 2,549 | 5,639 | 2,060 | (1,014 | ) | 24,585 | ||||||||||||||||||||||||||||||||||||||||
Operating pre-tax net income (loss) | 8,594 | (1,131 | ) | 4,192 | 3,061 | (7,519 | ) | 1 | 4,137 | (1,480 | ) | (729 | ) | 6,524 | 5,795 | (2,060 | ) | - | 2,255 | |||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 2,234 | (293 | ) | (289 | ) | (582 | ) | (1,009 | ) | - | 643 | (385 | ) | (191 | ) | 1,697 | 1,506 | (535 | ) | - | 586 | |||||||||||||||||||||||||||||||||||
Operating net income (loss) | $ | 6,360 | $ | (838 | ) | $ | 4,481 | $ | 3,643 | $ | (6,510 | ) | $ | 1 | $ | 3,494 | $ | (1,095 | ) | $ | (538 | ) | $ | 4,827 | $ | 4,289 | $ | (1,525 | ) | $ | - | $ | 1,669 |
The following table reconciles operating net income (loss) to Total Segments operating pre-tax net income, and also to consolidated pre-tax net income (loss) attributable to JMP Group LLC and to consolidated net income (loss) attributable to JMP Group LLC for the three months ended March 31, 2020 and nine months ended September 30, 2019 and 2018.
(In thousands) | Three Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Consolidated net income (loss) attributable to JMP Group LLC | $ | (4,061 | ) | $ | 288 | $ | (11,748 | ) | $ | 5,069 | ||||||
Income tax expense (benefit) | (1,220 | ) | 527 | |||||||||||||
Income tax benefit | (7,239 | ) | (4,102 | ) | ||||||||||||
Consolidated pre-tax net income (loss) attributable to JMP Group LLC | $ | (5,281 | ) | $ | 815 | $ | (18,987 | ) | $ | 967 | ||||||
Addback (subtract): | ||||||||||||||||
Share-based awards and deferred compensation | (753 | ) | (76 | ) | (546 | ) | (844 | ) | ||||||||
General loan loss provision – CLOs, CLO warehouse | - | (855 | ) | |||||||||||||
Early retirement/reissuance | (625 | ) | (170 | ) | ||||||||||||
Early retirement of debt | (89 | ) | - | |||||||||||||
Impairment of CLO debt securities | (13,523 | ) | - | |||||||||||||
Amortization of intangible asset – CLO III | - | (69 | ) | - | (277 | ) | ||||||||||
Unrealized loss in real estate fund investment – depreciation and amortization | (647 | ) | (260 | ) | (338 | ) | (557 | ) | ||||||||
Unrealized mark-to-market gain (loss) on strategic equity investments | (604 | ) | 327 | (3,766 | ) | 390 | ||||||||||
Total consolidation adjustments and reconciling items | (2,629 | ) | (1,103 | ) | (18,262 | ) | (1,288 | ) | ||||||||
Total segments adjusted operating pre-tax net income (loss) | $ | (2,652 | ) | $ | 1,918 | $ | (725 | ) | $ | 2,255 | ||||||
Subtract (addback) of segment income tax expense (benefit) | (689 | ) | 177 | (188 | ) | 586 | ||||||||||
Operating net income (loss) | $ | (1,963 | ) | $ | 1,741 | $ | (537 | ) | $ | 1,669 |
(In thousands) | Nine Months Ended September 30, | |||||||
2019 | 2018 | |||||||
Consolidated net income (loss) attributable to JMP Group LLC | $ | (104 | ) | $ | (1,983 | ) | ||
Income tax benefit | (5,839 | ) | (146 | ) | ||||
Consolidated pre-tax net loss attributable to JMP Group LLC | $ | (5,943 | ) | $ | (2,129 | ) | ||
Subtract: | ||||||||
Share-based awards and deferred compensation | (2,184 | ) | (289 | ) | ||||
General loan loss provision – CLOs, CLO warehouse | - | (2,348 | ) | |||||
Early retirement/reissuance | (625 | ) | (1,488 | ) | ||||
CLO refinancing costs | - | (54 | ) | |||||
Amortization of intangible asset – CLO III | (277 | ) | (207 | ) | ||||
Unrealized loss in real estate fund investment – depreciation and amortization | (1,425 | ) | (1,864 | ) | ||||
Unrealized mark-to-market loss on strategic equity investments | (93 | ) | (16 | ) | ||||
Total consolidation adjustments and reconciling items | (4,604 | ) | (6,266 | ) | ||||
Total segments adjusted operating pre-tax net income (loss) | $ | (1,339 | ) | $ | 4,137 | |||
Subtract (addback) of segment income tax expense (benefit) | (348 | ) | 643 | |||||
Operating net income (loss) | $ | (991 | ) | $ | 3,494 |
Overview
Total net revenues after provision for loan losses was $33.3were $27.2 million for the quarter ended September 30, 2018March 31, 2019 and $21.0$5.3 million for the same period in 2019.2020.
Non-interest revenues decreased $8.5$19.5 million, or 28.3%82.5%, from $30.0$23.6 million for the quarter ended September 30, 2018March 31, 2019 to $21.5$4.1 million in the same period in 2019.2020. This decrease was primarily driven by a $5.9$22.8 million decrease in principal transaction revenues, partially offset by a $2.7 increase in investment banking revenues and a $2.1 million decrease in asset management revenues.
Net interest income decreased $4.5$3.1 million, or 91.8%87.7%, from $4.9$3.5 million for the quarter ended September 30, 2018March 31, 2019 to $0.4 million for the quarter ended September 30, 2019March 31, 2020. The decrease in net interest income was due to the deconsolidation of the CLOs during the three month period ended March 31, 2019.2019.
Provision for loan losses decreased $1.1Gain on repurchase, reissuance, or early retirement of debt increased $0.7 million from a provision of $1.5zero for the quarter ended March 31, 2019 to $0.7 million for the quarter ended March 31, 2020.
Total non-interest expenses decreased $1.8 million, or 6.8%, from $26.1 million for the quarter ended September 30, 2018March 31, 2019 to $0.4 for the quarter ended September 30, 2019. The decrease in provision of loan losses was due to the deconsolidation of the CLOs during the three months ended March 31, 2019.
Total non-interest expenses decreased $5.2 million, or 16.6%, from $31.6$24.3 million for the quarter ended September 30, 2018 to $26.4 million for the quarter ended September 30, 2019March 31, 2020, primarily due to a $5.2$1.0 million decrease in compensation and benefits.
Net income attributable to non-controlling interest decreased $0.9$0.2 million, or 108.1%230.0%, from net income of $0.8$0.1 million for the quarter ended September 30, 2018March 31, 2019 to a net loss of $0.1 million for the quarter ended September 30, 2019March 31, 2020. The decrease in net income attribute to non-controlling interest holders is due to the deconsolidation of CLO III during the three months ended March 31, 2019.2019.
Net income attributable to JMP Group LLC decreased $4.4$16.8 million, or 331.8%, from a net income of $0.3$5.1 million for the quarter ended September 30, 2018March 31, 2019 to a net loss of $4.1$11.7 million for the quarter ended September 30, 2019March 31, 2020. The decrease in net income attributable to JMP Group LLC was primarily due to the decreased non-interest revenues earned in the quarter ended September 30, 2019March 31, 2020 compared to the same period in 2018.. 2019.
Revenues
Investment Banking
Investment banking revenues, earned in our Broker-Dealer segment, decreased $5.9increased $2.7 million, or 27.8%23.1%, from $21.1$11.9 million for the quarter ended September 30, 2018March 31, 2019 to $15.2$14.6 million for the same period in 2019.2020. As a percentage of total net revenues, after provision for loan losses, investment banking revenues increased from 63.4%43.7% for the quarter ended September 30, 2018March 31, 2019 to 72.4%277.7% for the quarter ended September 30, 2019March 31, 2020. On an operating basis, investment banking revenues were 67.5%64.3% and 64.1%44.3% for the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively, as a percentage of adjustedtotal net revenues.
(Dollars in thousands) | Three Months Ended September 30, | Change from 2019 to 2018 | Three Months Ended March 31, | Change from 2020 to 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Count | Revenues | Count | Revenues | Count | $ | % | Count | Revenues | Count | Revenues | Count | $ | % | |||||||||||||||||||||||||||||||||||||||||||
Equity and debt origination | 17 | $ | 8,561 | 21 | $ | 11,366 | (4 | ) | $ | (2,805 | ) | -24.7 | % | 17 | $ | 8,556 | 17 | $ | 6,789 | 0 | $ | 1,767 | 26.0 | % | ||||||||||||||||||||||||||||||||
Strategic advisory and private placements | 6 | 6,667 | 4 | 9,729 | 2 | $ | (3,062 | ) | -31.5 | % | 4 | 6,069 | 6 | 5,090 | (2 | ) | $ | 979 | 19.2 | % | ||||||||||||||||||||||||||||||||||||
Total | 23 | $ | 15,228 | 25 | $ | 21,095 | (2 | ) | $ | (5,867 | ) | -27.8 | % | 21 | $ | 14,625 | 23 | $ | 11,879 | (2 | ) | $ | 2,746 | 23.1 | % |
The decreaseincrease in revenues was driven by an 8.0%8.7% decrease in the number of transactions executed and a 21.5% decrease34.8% increase in the average size of the fee paid per transaction. The number of transactions in which we acted as a bookrunning manager was sixtwo and onethree for the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively.
Brokerage Revenues
Brokerage revenues earned in our Broker-Dealer segment decreased from $4.7$4.5 million for the quarter ended September 30, 2018March 31, 2019 to $4.0$4.2 million for the quarter ended September 30, 2019March 31, 2020. Brokerage revenues increased as a percentage of total net revenues, after provision for loan losses, from 14.1%16.7% for the quarter ended September 30, 2018March 31, 2019 to 18.9%79.5% for the quarter ended September 30, 2019March 31, 2020. On an operating basis, brokerage revenues were 17.6%18.4% and 14.2%16.9% for the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively, as a percentage of adjustedtotal net revenues.
(In thousands) | Three Months Ended September 30, | |||||||
2019 | 2018 | |||||||
Base management fees: | ||||||||
Fees reported as asset management fees | $ | 1,572 | $ | 3,199 | ||||
Less: Non-controlling interest in HCAP Advisors | (282 | ) | (123 | ) | ||||
Total base management fees | 1,290 | 3,076 | ||||||
Incentive fees: | ||||||||
Fees reported as asset management fees | $ | 56 | $ | 503 | ||||
Less: Non-controlling interest in HCAP Advisors | - | (149 | ) | |||||
Total incentive fees | 56 | 354 | ||||||
Other fee income: | ||||||||
Fundraising fees and other | $ | 759 | $ | 306 | ||||
Less: Non-controlling interest in HCAP Advisors | (41 | ) | (41 | ) | ||||
Total other fee income | 718 | 265 | ||||||
Asset management related fees: | ||||||||
Fees reported as asset management fees | $ | 1,628 | $ | 3,702 | ||||
Fees reported as other income | 759 | 306 | ||||||
Less: Non-controlling interest in HCAP Advisors | (323 | ) | (313 | ) | ||||
Total segment asset management related fee revenues | $ | 2,064 | $ | 3,695 |
(In thousands) | Three Months Ended March 31, | |||||||
2020 | 2019 | |||||||
Asset management related fees: | ||||||||
Fees reported as asset management fees | $ | 1,716 | $ | 1,703 | ||||
Fees reported as other income | 935 | (35 | ) | |||||
Less: non-controlling interests | (308 | ) | (269 | ) | ||||
Total segment asset management related fee revenues | $ | 2,343 | $ | 1,399 |
Principal transaction revenues decreased $0.8$22.8 million from a gain of $0.5$5.3 million for the quarter ended September 30, 2018March 31, 2019 to a loss of $0.3$17.5 million for the same period in 2019. As2020. This decrease was primarily driven by a percentage of total net revenues after provision for loan losses,$13.5 million impairment loss on CLO debt securities included in principal transaction revenues were 1.4% for the quarter ended September 30, 2018March 31, 2020 and 1.6% fora $3.4 million gain on deconsolidation of JMPCA included in the quarter ended September 30, 2019.same period in 2019.
Total segment principal transaction revenues increaseddecreased from a gain of $0.4$5.4 million for the quarter ended September 30, 2018March 31, 2019 to a gain of $0.9$0.1 million for the same period in 2019.2020. Total segment principal transaction revenues are a non-GAAP financial measure that aggregates our segment reported principal transaction revenues across each segment. The principal transaction revenues for both 20192020 and 20192018 were included in our Investment Income segment. Total segment principal transaction revenues are reconciled to the GAAP measure, total principal transaction revenues, in the table below. See the Operating Net Income section above for additional information on the adjustments made to arrive at the non-GAAP measure and why management believes that this non-GAAP number is useful and important to the users of these financial statements.
(In thousands) | Three Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Equity and other securities | $ | (15 | ) | $ | 199 | $ | (824 | ) | $ | 1,461 | ||||||
Warrants and other investments | 894 | 83 | 907 | 4,308 | ||||||||||||
Investment partnerships | 4 | 95 | (2 | ) | (382 | ) | ||||||||||
Total segment principal transaction revenues | 883 | 377 | 81 | 5,387 | ||||||||||||
Operating adjustment addbacks | (1,223 | ) | 92 | (17,633 | ) | (99 | ) | |||||||||
Total principal transaction revenues | $ | (340 | ) | $ | 469 | $ | (17,552 | ) | $ | 5,288 |
The decrease in principal transaction revenue in the quarter ended September 30, 2019March 31, 2020 compared to the same period in 20182019 is primarily attributed to the $3.4 million gain on deconsolidation of JMPCA that was recognized in 2019, a $0.9$0.8 million decrease in gains on investments in real estate and a $1.5 million decrease in revenues related to the change in the fair value of the Company's investment in Harvest Capital Credit Corporation, a $0.2 million decrease in revenues related to the Company'sCompany’s principal trading activity, which was partially offset by $0.5 million increase in revenues from the Company's investment in a venture capital fund.activity. On an operating basis, as a percentage of adjustedtotal net revenues, principal transaction revenues increased from 1.1%20.1% for the quarter ended September 30, 2018March 31, 2019 to 3.9%0.4% for the quarter ended September 30, 2019March 31, 2020.
Gain (Loss) on Sale, Payoff, and Mark-to-Market of Loans
Gain (loss) on sale, payoff, and mark-to-market of loans decreasedincreased from a loss of $0.6 million$17 thousand for the quarter ended September 30, 2018March 31, 2019 to zero for the quarter ended September 30, 2019March 31, 2020. Gain (loss) on sale, payoff, and mark-to-market of loans was earned in our Investment Income segment. On a segment basis, gain (loss) on sale, payoff, and mark-to-market of loans decreased from a loss of $0.5 million for the quarter ended September 30, 2018 to zero for the quarter ended September 30, 2019.
Net Dividend Income
Net dividend income wasdecreased $0.1 million, from $0.3 million for both of the quartersquarter ended September 30,March 31, 2019 andto $0.2 million for the quarter ended 2018March 31, 2020. Net dividend income primarily related to dividends from our HCC investment.
(In thousands) | Three Months Ended September 30, | |||||||
2019 | 2018 | |||||||
CLO III loan contractual interest income | $ | - | $ | 5,553 | ||||
CLO III ABS issued contractual interest expense | - | (3,343 | ) | |||||
Net CLO III contractual interest | - | 2,210 | ||||||
CLO IV loan contractual interest income | $ | - | $ | 6,939 | ||||
CLO IV ABS issued contractual interest expense | - | (4,943 | ) | |||||
Net CLO IV contractual interest | - | 1,996 | ||||||
CLO V loan contractual interest income | $ | - | $ | 5,780 | ||||
CLO V warehouse/ABS issued contractual interest expense | - | (3,816 | ) | |||||
Net CLO V contractual interest | - | 1,964 | ||||||
CLO VI loan contractual interest income | $ | - | $ | - | ||||
CLO VI warehouse credit facility contractual interest expense | - | - | ||||||
Net CLO VI contractual interest | - | - | ||||||
Bond payable interest expense | (1,647 | ) | (1,792 | ) | ||||
CLO subordinated notes interest income | 1,929 | - | ||||||
Less: Non-controlling interest and other adjustments | 165 | (1,148 | ) | |||||
Other interest income | 116 | 485 | ||||||
Total segment net interest income | $ | 563 | $ | 3,715 | ||||
Non-controlling interest and other adjustments | (165 | ) | 1,148 | |||||
Total net interest income | $ | 398 | $ | 4,863 |
Net interest income decreased $4.5$3.1 million from $4.9$3.5 million for the quarter ended September 30, 2018March 31, 2019 to $0.4 million for the quarter ended September 30, 2019March 31, 2020. The decrease in net interest income was driven primarily by a $6.2$4.0 million decrease in net interest earned on the CLOs, as theywhich were deconsolidated during the three months ended March 31, 2019, partially offset by a $1.9$1.4 million increase in net interest income earned on the retained interest in CLO subordinated notes. As a percentage of total net revenues, after provision for loan losses, net interest income was 1.9% for the quarter ended September 30, 2018 and 14.6%12.9% for the quarter ended September 30,March 31, 2019 and 8.2% for the quarter ended March 31, 2020.
Total segment net interest income decreased from $3.7$3.3 million for the quarter ended September 30, 2018March 31, 2019 to $0.5 million for the quarter ended September 30, 2019March 31, 2020. Net interest income is earned in our Investment Income segment and reflects our portion of the net CLO contractual interest before deconsolidation in the first quarter of 2019, net of bond interest expense. Total segment net interest income after deconsolidation reflects the effective yield of the Company's ownership of subordinated notes in CLO III, CLO IV, and CLO V, net of bond interest expense. Total segment net interest income is reconciled to the GAAP measure, total net interest income, in the table above. As a percentage of total segment net revenues, net interest income was 11.3%12.4% for the quarter ended September 30, 2018March 31, 2019 and 2.4%2.0% for the quarter ended September 30, 2019March 31, 2020.
The following table sets forth contractual interest income and expense related to CLO loans and ABS issued (through the respective deconsolidation dateGain on Repurchase, Reissuance, or Early Retirement of each CLO) and their weighted average contractual interest rates:Debt
(In thousands) | Three Months Ended September 30, 2018 | |||||||||||||||||||
Interest Income (Expense) | Average CLO loan contractual interest income (CLO ABS contractual interest expense) Balance | Weighted Average Contractual Interest Rate | Weighted Average LIBOR | Spread to Weighted Average LIBOR | ||||||||||||||||
CLO III loan contractual interest income | $ | 5,553 | $ | 352,740 | 5.87 | % | 2.34 | % | 3.53 | % | ||||||||||
CLO III ABS contractual interest expense | (3,343 | ) | (332,100 | ) | 3.74 | % | 2.39 | % | 1.35 | % | ||||||||||
CLO IV loan contractual interest income | 6,939 | 443,247 | 5.88 | % | 2.34 | % | 3.54 | % | ||||||||||||
CLO IV ABS contractual interest expense | (4,943 | ) | (422,017 | ) | 4.45 | % | 2.39 | % | 2.06 | % | ||||||||||
CLO V loan contractual interest income | 5,780 | 368,143 | 5.81 | % | 2.33 | % | 3.48 | % | ||||||||||||
CLO V warehouse contractual interest expense | (3,816 | ) | (378,000 | ) | 4.23 | % | 2.33 | % | 1.90 | % | ||||||||||
Net CLO contractual interest | $ | 6,170 | N/A | N/A | N/A | N/A |
(in thousands) | Three Months Ended September 30, | |||||||
2019 | 2018 | |||||||
CLO related provision | $ | - | $ | (1,305 | ) | |||
Non-CLO related provision | (438 | ) | (149 | ) | ||||
Provision for loan losses | (438 | ) | (1,454 | ) | ||||
Less: General reserves related to CLOs and CLO warehouse | - | (984 | ) | |||||
Segment provision for loan losses | $ | (438 | ) | $ | (470 | ) |
Provision for loan losses decreased $1.1Gain on repurchase, reissuance, or early retirement of debt increased $0.7 million from a provision of $1.5 millionzero for the quarter ended September 30, 2018March 31, 2019 to a provision of $0.4 million for the same period in 2019. The decrease was due to deconsolidation of CLO III, CLO IV, CLO V, and CLO VI warehouse during the first quarter of 2019. As a percent of net revenues after provision for loan losses, the provision for loan losses was 4.4% of the quarter ended September 30, 2018 and 2.1% for the quarter ended September 30, 2019.
Total segment provision for loan losses decreased from a provision of $0.5 million for the quarter ended September 30, 2018 to a provision of $0.4$0.7 million for the quarter ended September 30, 2019March 31, 2020. Total segment provision for loan losses is a non-GAAP financial measure that aggregates our segment reported provision for loan losses across each segment. Our total segment provision for loan losses inThe increase was driven primarily by the repurchase of $1.4 million and $0.7 million par value of its issued and outstanding 2019 Senior Notes and 2018 was solely earned in our Investment Income segment. As a percent of total segment adjusted net revenues, segment provision for loan losses increased from 1.4% for the quarter ended September 30, 2018 and 1.9% for the quarter ended September 30, 2019.2017 Senior Notes, respectively.
Expenses
Non-Interest Expenses
Compensation and Benefits
Compensation and benefits, which includes employee payroll, taxes and benefits, performance-based cash bonus and commissions, as well as equity-based compensation to our employees and managing directors, decreased $5.2$1.0 million, or 22.8%5.9%, from $22.7$17.2 million for the quarter ended September 30, 2018March 31, 2019 to $17.5$16.2 million for the quarter ended September 30, 2019March 31, 2020.
Employee payroll, taxes and benefits, and consultant fees increased $0.1 million from $10.4$11.3 million for the quarter ended September 30, 2018March 31, 2019 to $10.5$11.4 million for the quarter ended September 30, 2019March 31, 2020. Performance-based bonus and commission decreased $5.4$1.0 million from $11.9$5.4 million for the quarter ended September 30, 2018March 31, 2019 to $6.5$4.4 million for the quarter ended September 30, 2019March 31, 2020.
Equity-based compensation wasdecreased $0.1 million from $0.5 million for both of the quartersquarter ended September 30,March 31, 2019 and 2018.to $0.4 million for the quarter ended March 31, 2020
Compensation and benefits as a percentage of revenues increased from 68.2%63.4% of total net revenues after provision for loan losses for the quarter ended September 30,March 31, 2019 to 83.3%307.8% for the quarter ended March 31, 2020September 30, 2019. The decreaseincrease in the compensation and benefits as a percentage of revenues is primarily due to the decrease in total net revenues after provision for loan losses from the three months ended September 30, 2018March 31, 2019 compared to the provision in the same period in 2019.2020. As employee bonuses are performance based and make up a substantial portion of total compensation, decreased total net revenues after provisions for loan losses has decreased the total compensation for the period. CompensationHowever, compensation and benefits as a percentage of revenues increased due to lower net revenues after provision for loan losses in the quarter ended September 30, 2019March 31, 2020 compared to the same period on 2018.2019.
Our segment reported compensation and benefits recognizes 100% of the cost of deferred compensation, including non-cash share-based compensation expense, in the period for which such compensation was awarded, instead of recognizing such cost over the vesting period as required under GAAP, in order to match compensation expense with the actual period upon which the compensation was based. The segment reported compensation and benefits decreased $5.9$0.7 million from $22.3$16.4 million for the quarter ended September 30, 2018March 31, 2019 to $16.4$15.7 million for the quarter ended September 30, 2019March 31, 2020. As a percent of total segment net revenues, compensation and benefits were 67.7%61.0% for the quarter ended September 30, 2018March 31, 2019 and 72.7%68.9% for the quarter ended September 30, 2019March 31, 2020.
Administration
Administration expense was $2.3increased $0.3 million from $1.9 million for both of the quartersquarter ended September 30,March 31, 2019 and to $2.2 million for the quarter ended 2018March 31, 2020.. As a percentage of total net revenues, after provision for loan losses, administration expense were 10.9%42.2% and 6.9%7.1% for the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively.
Brokerage, Clearing and Exchange Fees
Brokerage, clearing and exchange fees were $0.6 million and $0.8$0.7 million for the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively. As a percentage of total net revenues, after provision for loan losses, our brokerage, clearing and exchange fees were 2.9%12.0% and 2.4%2.6% for the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively.
Travel and Business Development
Travel and business development expenses were $1.3$0.9 million and $1.1$1.0 million for the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively. As a percentage of total net revenues, after provision for loan losses, travel and business development expense was 6.0%17.5% and 3.2%3.8% for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively.
Managed deal expenses
Managed deal expenses were $0.7$0.6 million and $0.6$0.5 million for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively. As a percentage of total net revenues, after provision for loan losses, managed deal expenses were 3.3%11.2% and 1.8%2.0% for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively.
Communications and Technology
Communications and technology expenses were $1.1 millionand $1.0 million for both of the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively.. As a percentage of total net revenues, after provision for loan losses, communications and technology expense were 5.0%21.4% and 3.1%3.9% for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively.
Occupancy
Occupancy expenses were $1.2 million and $1.4 million for both of the quarters ended September 30,March 31, 2020 and 2019 and , respectively.2018. As a percentage of total net revenues, after provision for loan losses, occupancy expenses were 5.7%22.8% and 3.5%5.2% for the quarters ended September 30,March 31, 2020 and 2019 and 2018, respectively.
Professional Fees
Professional fees were $1.2$0.9 million and $1.3$1.5 million for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively. As a percentage of total net revenues, after provision for loan losses, professional fees were 5.9%16.9% and 3.8%5.4% for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively.
Depreciation
Depreciation expenses were $0.5 million and $0.3 million for both of the quarters ended September 30,March 31, 2020 and 2019, respectively. and 2018. As a percentage of total net revenues, after provision for loan losses, depreciation was 1.5%10.4% and 0.9%1.1% for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively.
Other Expenses
Other expenses were $0.2 millionzero and $0.4$0.5 million for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively. As a percentage of total net revenues, after provision for loan losses, other expenses were 1.0%0.0% and 1.1%1.8% for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively.
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest decreased from net income of $0.8$0.1 million for the quarter ended September 30, 2018March 31, 2019 to net loss of $0.1 million for the quarter ended September 30, 2019. The decrease in the income attributable to non-controlling interest holders is a result of the deconsolidation of CLO III during the three months ended March 31, 2019.2020. Non-controlling interest for the quarter ended September 30, 2018March 31, 2019 includes the interest of third parties in CLO III, HCAP Advisors, and HCS SI. Non-controlling interest for the quarter ended September 30, 2019March 31, 2020 includes the interest of third parties in HCAP Advisors and HCS SI.
Provision for Income Taxes
The incomeIncome tax recordedbenefit was a benefit of $1.2$7.2 million and an expense of $0.5$4.1 million for the quarters ended September 30, 2019March 31, 2020 and 20182019, respectively. The Company's tax expense decreasedbenefit increased for the quarter ended September 30, 2019March 31, 2020 from September 30, 2018March 31, 2019 due to decreaseda decrease from net income to a net loss from period2019 to period. 2020.
For financial reporting purposes, the Company’s effective tax rate used for the interim periods is based on the estimated full-year income tax rate. The effective tax rate differs from the statutory rate primarily due to the net operating loss carryback that was created in prior year which was subsequently carried back to offset years with taxable income that was derived from a different corporate tax rate.
Segment income tax was a $0.2 million benefit and $0.6 million expense for the quarters ended March 31, 2020 and 2019, respectively.
For the quarterquarters ended September 30,March 31, 2020 and 2019,, an effective tax rate of 26% is assumed for our taxable parent company, based on our best estimation of the subsidiary’s average rate of taxation over the long term. For the quarter ended September 30, 2018, an effective tax rate of 26% is assumed at the taxable direct subsidiary and a tax rate of 0% is assumed at the other direct subsidiary, which was a "a pass through entity" for tax purposes. Segment income tax was a $0.7 million benefit and $0.2 million expense for the quarters ended September 30, 2019 and 2018, respectively.
U.S. federal corporate income tax reform included a broad range of proposals affecting businesses, including corporate tax rates, business deductions and international tax provisions. The reduction in the federal corporate tax rate required a revaluation of our deferred tax assets at the corporate entity level. International tax provisions, including a shift to a territorial system, did not impact JMP Group LLC’s investment in foreign corporations, asBeginning January 1, 2019, the Company has historically included accumulated earnings and profits from controlled foreign corporations.
Nine Months Ended September 30,2019 Compared to Nine Months Ended September 30,2018
Overview
Total net revenues after provision for loan losses was $104.7 million for the nine months ended September 30, 2018 and $76.3 million for the same period in 2019.
Non-interest revenues decreased $27.5 million, or 27.5%, from $99.9 million for the nine months ended September 30, 2018 to $72.4 million in the same period in 2019. This decrease was driven by a $25.5 million decrease in investment banking revenues, $9.8 million decrease in asset management revenues, and a $1.6 million decrease in brokerage revenues, partially offset by a $7.8 million increase in principal transaction revenue.
Net interest income decreased $7.2 million, or 60.1%, from $11.9 million for the nine months ended September 30, 2018 to $4.7 million for the nine months ended September 30, 2019. The decrease in net interest income was due to the deconsolidation of the CLOs during the three month period ended March 31, 2019.
Loss on repurchase, reissuance, or early retirement of debt decreased $2.3 million from $2.8 million for the nine months ended September 30, 2018 to $0.5 million for the nine months ended September 30, 2019.
Provision for loan losses decreased $3.8 million from a provision of $4.2 million for thenine months ended September 30, 2018 to a provision of $0.4 million for the nine months ended September 30, 2019. The decrease in provision of loan losses was due to the deconsolidation of the CLOs during the three months ended March 31, 2019.
Total non-interest expenses decreased $24.4 million, or 22.9%, from $106.7 million for the nine months ended September 30, 2018 to $82.3 million for the nine months ended September 30, 2019, primarily due to a $21.4 million decrease in compensation and benefits, a $2.0 million decrease in managed deal expenses, a $0.8 million decrease in professional fees, and a $0.8 million decrease in other fees.
Net income attributable to non-controlling interest decreased $0.2 million, or 158.0%, from net income of $0.1 million for the nine months ended September 30, 2018 to a net loss of $0.1 million for the nine months ended September 30, 2019.
Net income attributable to JMP Group LLC increased $1.9 million from a net loss of $2.0 million for the nine months ended September 30, 2018 to net loss of $0.1 million for the nine months ended September 30, 2019. The increase in net income attributable to JMP Group LLC was due to the Company's election to be treated as a C-corporation for tax purposes which resulted in the Company recognizing initial temporary differences between the book and tax basis of assets and liabilities that were previously held by pass through entities.
Revenues
Investment Banking
Investment banking revenues, earned in our Broker-Dealer segment, decreased $25.5 million, or 36.2%, from $70.3 million for the nine months ended September 30, 2018 to $44.8 million for the same period in 2019. As a percentage of total net revenues after provision for loan losses, investment banking revenues decreased from 67.1% for the nine months ended September 30, 2018 to 58.8% for the nine months ended September 30, 2019. On an operating basis, investment banking revenues were 58.0% and 64.8% for the nine months ended September 30, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
(Dollars in thousands) | Nine Months Ended September 30, | Change from 2019 to 2018 | ||||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||||||
Count | Revenues | Count | Revenues | Count | $ | % | ||||||||||||||||||||||
Equity and debt origination | 59 | $ | 27,678 | 73 | $ | 47,276 | (14 | ) | $ | (19,598 | ) | -41.5 | % | |||||||||||||||
Strategic advisory and private placements | 15 | 17,165 | 17 | 23,043 | (2 | ) | $ | (5,878 | ) | -25.5 | % | |||||||||||||||||
Total | 74 | $ | 44,843 | 90 | $ | 70,319 | (16 | ) | $ | (25,476 | ) | -36.2 | % |
The decrease in revenues was driven by a 17.8% decrease in the number of transactions executed and a 22.4% decrease in the average size of the fee paid per transaction. The number of transactions in which we acted as a bookrunning manager was sixteen and nine for the nine months ended September 30, 2019 and 2018, respectively.
Brokerage Revenues
Brokerage revenues earned in our Broker-Dealer segment decreased from $14.8 million for the nine months ended September 30, 2018 to $13.2 million for the nine months ended September 30, 2019. Brokerage revenues increased as a percentage of total net revenues after provision for loan losses, from 14.1% for the nine months ended September 30, 2018 to 17.3% for the nine months ended September 30, 2019. On an operating basis, brokerage revenues were 17.0% and 13.6% for the nine months ended September 30, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
(In thousands) | Nine Months Ended September 30, | |||||||
2019 | 2018 | |||||||
Base management fees: | ||||||||
Fees reported as asset management fees | $ | 4,777 | $ | 9,524 | ||||
Less: Non-controlling interest in HCAP Advisors | (782 | ) | (483 | ) | ||||
Total base management fees | 3,995 | 9,041 | ||||||
Incentive fees: | ||||||||
Fees reported as asset management fees | $ | 908 | $ | 5,981 | ||||
Less: Non-controlling interest in HCAP Advisors | (2 | ) | (149 | ) | ||||
Total incentive fees | 906 | 5,832 | ||||||
Other fee income: | ||||||||
Fundraising fees and other | $ | 1,517 | $ | 666 | ||||
Less: Non-controlling interest in HCAP Advisors | (124 | ) | (120 | ) | ||||
Total other fee income (loss) | 1,393 | 546 | ||||||
Asset management related fees: | ||||||||
Fees reported as asset management fees | $ | 5,685 | $ | 15,505 | ||||
Fees reported as other income | 1,517 | 666 | ||||||
Less: Non-controlling interest in HCAP Advisors | (908 | ) | (752 | ) | ||||
Total segment asset management related fee revenues | $ | 6,294 | $ | 15,419 |
Fees reported as asset management fees were $5.7 million and $15.5 million for the nine months ended September 30, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, asset management revenues decreased from 14.8% for the nine months ended September 30, 2018 to 7.5% for the nine months ended September 30, 2019. Asset management fees decreased from the nine months ended September 30, 2018 due to (i) the sale of the HSCP entities on December 31, 2018 which resulted in a decrease of approximately $360.0 million in assets under management and (ii) due to decreased incentive fees recorded in the nine months ended September 30, 2019 compared to the same period in 2018. In the nine months ended September 30, 2018, the Company recognized $5.3 million in incentive fees related to a hedge fund managed by the Company that liquidated during the period. As a result, the Company recognized incentive fees that were previously deferred due to the presence of claw backs.
Total segment asset management-related fees include base management fees and incentive fees from our funds, HCC and CLOs under management (through March 19, 2019), as well as other income from fee-sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds. Total segment asset management-related fee revenues are reconciled to the GAAP measure, total asset management fee revenues, in the table above. We believe that presenting operating asset management-related fees is useful to investors as a means of assessing the performance of our combined asset management activities, including fundraising and other services for third parties. We believe that segment asset management-related fee revenues provides useful information by indicating the relative contributions of base management fees and performance-related incentive fees, thus facilitating a comparison of those fees in a given period to those in prior and future periods. We also believe that asset management-related fee revenue is a more meaningful measure than standalone asset management fees as reported, because asset management-related fee revenues represent the combined impact of the various asset management activities on the Company’s total net revenues.
Total segment asset management related fee revenue decreased $9.1 million, from $15.4 million for the nine months ended September 30, 2018 to $6.3 million for the nine months ended September 30, 2019. Total base management fees were $4.0 million and $9.2 million for the nine months ended September 30, 2019 and 2018, respectively. Total incentive fees decreased from $5.8 million for the nine months ended September 30, 2018 to $0.9 million for the same period in 2019. Asset management fees decreased from the nine months ended September 30, 2018 due to (i) the sale of the HSCP entities on December 31, 2018 which resulted in a decrease of approximately $360.0 million in assets under management and decreased base management fees and (ii) due to decreased incentive fees recorded in the nine months ended September 30, 2019 compared to the same period in 2018. In the nine months ended September 30, 2018, the Company recognized $5.3 million in incentive fees related to a hedge fund managed by the Company that liquidated during the period. As a result, the Company recognized incentive fees that were previously deferred due to the presence of claw backs. On an operating basis, asset management related fee revenues were 8.1% and 14.2% for the nine months ended September 30, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
Principal Transactions
(In thousands) | Nine Months Ended September 30, | |||||||
2019 | 2018 | |||||||
Equity and other securities excluding non-controlling interest | $ | 1,354 | $ | (630 | ) | |||
Warrants and other investments | 6,253 | 812 | ||||||
Investment partnerships | 155 | 316 | ||||||
Total segment principal transaction revenues | 7,762 | 498 | ||||||
Operating adjustment addbacks | (1,391 | ) | (1,965 | ) | ||||
Total principal transaction revenues | $ | 6,371 | $ | (1,467 | ) |
(In thousands) | Nine Months Ended September 30, | |||||||
2019 | 2018 | |||||||
CLO III loan contractual interest income | $ | 1,074 | $ | 15,885 | ||||
CLO III ABS issued contractual interest expense | (660 | ) | (9,680 | ) | ||||
Net CLO III contractual interest | 414 | 6,205 | ||||||
CLO IV loan contractual interest income | $ | 6,240 | $ | 19,691 | ||||
CLO IV ABS issued contractual interest expense | (4,492 | ) | (13,879 | ) | ||||
Net CLO IV contractual interest | 1,748 | 5,812 | ||||||
CLO V loan contractual interest income | $ | 5,400 | $ | 10,475 | ||||
CLO V warehouse/ABS issued contractual interest expense | (3,836 | ) | (6,148 | ) | ||||
Net CLO V contractual interest | 1,564 | 4,327 | ||||||
CLO VI loan contractual interest income | $ | 551 | $ | - | ||||
CLO VI warehouse credit facility contractual interest expense | (245 | ) | - | |||||
Net CLO VI contractual interest | 306 | - | ||||||
Bond payable interest expense | (5,108 | ) | (5,630 | ) | ||||
CLO subordinated notes interest income | 5,081 | - | ||||||
Less: Non-controlling interest and other adjustments | (47 | ) | (3,137 | ) | ||||
Other interest income | 744 | 1,192 | ||||||
Total segment net interest income | $ | 4,702 | $ | 8,769 | ||||
Non-controlling interest and other adjustments | 47 | 3,137 | ||||||
Total net interest income | $ | 4,749 | $ | 11,906 |
Total segment net interest income decreased from $8.8 million for the nine months ended September 30, 2018 to $4.7 million for the nine months ended September 30, 2019. Net interest income is earned in our Investment Income segment and reflects our portion of the net CLO contractual interest before deconsolidation and interest earned on the Company's retained interest in the CLOs after deconsolidation, net of bond interest expense. Total segment net interest income after deconsolidation reflects the effective yield of the Company's ownership of subordinated notes in CLO III, CLO IV, and CLO V, net of bond interest expense. Total segment net interest income is reconciled to the GAAP measure, total net interest income, in the table above. As a percentage of total segment net revenues, net interest income was 8.1% for the six months ended September 30, 2018 and 6.1% for the quarter ended September 30, 2019.
(In thousands) | Nine Months Ended September 30, 2019 | |||||||||||||||||||
Interest Income (Expense) | Average CLO loan contractual interest income (CLO ABS contractual interest expense) Balance | Weighted Average Contractual Interest Rate | Weighted Average LIBOR | Spread to Weighted Average LIBOR | ||||||||||||||||
CLO III loan contractual interest income (1) | $ | 1,074 | $ | 351,245 | 6.21 | % | 2.72 | % | 3.49 | % | ||||||||||
CLO III ABS contractual interest expense (1) | (660 | ) | (332,100 | ) | 3.96 | % | 2.61 | % | 1.35 | % | ||||||||||
CLO IV loan contractual interest income (2) | 6,240 | 439,283 | 6.27 | % | 2.72 | % | 3.55 | % | ||||||||||||
CLO IV ABS contractual interest expense (2) | (4,492 | ) | (421,173 | ) | 4.76 | % | 2.72 | % | 2.05 | % | ||||||||||
CLO V loan contractual interest income (2) | 5,400 | 394,925 | 6.23 | % | 2.72 | % | 3.52 | % | ||||||||||||
CLO V warehouse/ABS contractual interest expense (2) | (3,836 | ) | (376,657 | ) | 4.59 | % | 2.71 | % | 1.88 | % | ||||||||||
CLO VI loan contractual interest income (2) | 551 | 38,006 | 6.33 | % | 2.77 | % | 3.56 | % | ||||||||||||
CLO VI warehouse contractual interest expense (2) | (245 | ) | (28,981 | ) | 4.02 | % | 2.77 | % | 1.25 | % | ||||||||||
Net CLO contractual interest | $ | 4,032 | N/A | N/A | N/A | N/A |
| |
(In thousands) | Nine Months Ended September 30, 2018 | |||||||||||||||||||
Interest Income (Expense) | Average CLO loan contractual interest income (CLO ABS contractual interest expense) Balance | Weighted Average Contractual Interest Rate | Weighted Average LIBOR | Spread to Weighted Average LIBOR | ||||||||||||||||
CLO III loan contractual interest income | $ | 15,885 | $ | 351,788 | 5.69 | % | 2.08 | % | 3.61 | % | ||||||||||
CLO III ABS contractual interest expense | (9,680 | ) | (332,100 | ) | 3.56 | % | 2.11 | % | 1.44 | % | ||||||||||
CLO IV loan contractual interest income | 19,691 | 438,583 | 5.69 | % | 2.08 | % | 3.61 | % | ||||||||||||
CLO IV ABS contractual interest expense | (13,879 | ) | (422,847 | ) | 4.18 | % | 2.12 | % | 2.07 | % | ||||||||||
CLO V loan contractual interest income | 10,475 | 231,550 | 5.66 | % | 2.33 | % | 3.32 | % | ||||||||||||
CLO V warehouse contractual interest expense | (6,148 | ) | (378,000 | ) | 4.23 | % | 2.33 | % | 1.90 | % | ||||||||||
Net CLO contractual interest | $ | 16,344 | $ N/A | N/A | N/A | N/A |
(in thousands) | Nine Months Ended September 30, | |||||||
2019 | 2018 | |||||||
CLO related provision | $ | - | $ | (3,860 | ) | |||
Non-CLO related provision | (438 | ) | (339 | ) | ||||
Provision for loan losses | (438 | ) | (4,199 | ) | ||||
Less: General reserves related to CLOs and CLO warehouse | - | 2,799 | ||||||
Segment provision for loan losses | $ | (438 | ) | $ | (1,400 | ) |
Provision for loan losses decreased $3.8 million from a provision of $4.2 million for the nine months ended September 30, 2018 to a provision of $0.4 million for the same period in 2019. The decrease was due to deconsolidation of CLO III, CLO IV, CLO V, and CLO VI warehouse during the first quarter of 2019. As a percent of net revenues after provision for loan losses, the provision for loan losses was 4.0% of the nine months ended September 30, 2018 and 0.6% for the nine months ended September 30, 2019.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted in response to market conditions related to the coronavirus (COVID-19) pandemic. The CARES Act includes many measures to help companies, including changes that are temporary and non-income based tax reform included a broad rangelaws, some of proposals affecting businesses, including corporate tax rates, business deductionswhich were part of the Tax Cuts and international tax provisions.Jobs Act (TCJA). The reductionCompany has made reasonable assessments in accounting for certain effects of the federal corporate tax rate required a revaluation of ourCARES Act that was passed. However, the provisional impacts may be refined over the prescribed measurement period.
The Company recognizes deferred tax assets atand liabilities in accordance with ASC 740, Income Taxes, and are determined based upon the corporate entity level. Internationaltemporary differences between the financial reporting and tax provisions, including a shiftbasis of the Company’s assets and liabilities using the tax rates and laws in effect when the differences are expected to a territorial system, did not impact reverse.
Summarized Financial Information
JMP Group LLC’s investmentInc., a wholly-owned subsidiary of JMP Group LLC, is the primary obligor of the Company’s 7.25% Senior Notes due 2027 (the “2017 Senior Notes”) (Note 7). Pursuant to the indenture of the 2017 Senior Notes, JMP Group LLC and JMP Investment Holdings LLC (the “Guarantors”) are the guarantors of the 2017 Senior Notes. The Guarantors jointly and severally provide a full and unconditional guarantee of the due and punctual payment of the principal and interest on the 2017 Senior Notes and the due and punctual payment or performance of all other obligations of JMP Group Inc. under the indenture governing the 2017 Senior Notes.
The following summarized financial information presents the information of JMP Group LLC, JMP Investment Holdings LLC and JMP Group Inc. on a combined basis and eliminates intercompany balances. It does not include or present investments in foreign corporations,subsidiaries that are not an issuer or guarantor. One of the non-guarantor subsidiaries not combined, JMP Securities, is subject to certain regulations, which require the maintenance of minimum net capital. This requirement may limit the issuer’s access to this subsidiary’s assets.
These disclosures are in accordance with the new disclosure requirements under SEC Regulation S-X Rule 3-10 and Rule 13-02 issued in March 2020. We have early adopted these disclosure rules.
The tables below present summarized financial information as of March 31, 2020 and December 31, 2019 and for the Company has historically included accumulated earnings and profits from controlled foreign corporations.three months ended March 31, 2020.
(In thousands) | As of | |||||||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
Cash and cash equivalents | $ | 7,203 | $ | 12,557 | ||||
Marketable securities owned, at fair value | $ | 27,240 | $ | 34,203 | ||||
Due from non-obligated subsidiaries | $ | 1,221 | $ | 200 | ||||
Deferred tax asset | $ | 18,010 | $ | 18,547 | ||||
Operating lease right-of-use asset | $ | 18,802 | $ | 19,632 | ||||
Total assets | $ | 91,963 | $ | 99,100 | ||||
Bond payable, net of debt issuance costs | $ | 80,636 | $ | 82,584 | ||||
Due to non-obligated subsidiaries | $ | 19,212 | $ | 20,912 | ||||
Operating lease liability | $ | 24,359 | $ | 25,394 | ||||
Total liabilities | $ | 135,645 | $ | 140,377 | ||||
Total equity | $ | (43,682 | ) | $ | (41,276 | ) | ||
Total liabilities and equity | $ | 91,963 | $ | 99,101 | ||||
(In thousands) | Three Months Ended | |||
March 31, 2020 | ||||
Total net revenues | $ | (8,027 | ) | |
Total non-interest expenses | $ | 1,952 | ||
Net loss | $ | (5,452 | ) |
Financial Condition, Liquidity and Capital Resources
In the section that follows, we discuss the significant changes in the components of our balance sheet, cash flows and capital resources and liquidity for the ninethree months ended September 30, 2019March 31, 2020 to demonstrate where our capital is invested and the financial condition of the Company.
Overview
As a result of the COVID-19 pandemic, we expect to experience reduced cash flow from operations as a result of decreased revenues. We expect certain costs to decline as the underlying activities are restricted by the COVID-19 pandemic, including travel and related expenses. In addition, even before the market upheaval due to the COVID-19 pandemic, we were focused on cutting our non-compensation costs materially during 2020. Reduced cash spending from those factors should partially offset the reduced cash flow from decreased revenues. However, the extent to which the COVID-19 pandemic will impact our liquidity in the second quarter and beyond remains uncertain. As of March 31, 2020, we had $38.4 million in cash and cash equivalents and $17.9 million in undrawn borrowing capacity on our revolving line of credit. Based on our historical results, management's experience and our current business strategy, we believe that our existing cash resources and available credit will be sufficient to meet anticipated working capital and capital expenditure requirements for at least the next twelve months.
As of September 30, 2019March 31, 2020, we had net liquid assets of $113.4$88.5 million primarily consisting of cash and cash equivalents, receivable from clearing broker, marketable securities owned, and investment banking receivables, net of marketable securities sold but not yet purchased and accrued compensation. We have satisfied our capital and liquidity requirements primarily through the issuance of the Senior Notes, draws on a line of credit, and internally generated cash from operations. Most of our financial instruments, other than loans held for investment and certain marketable securities, are recorded at fair value or amounts that approximate fair value.
As of September 30, 2019,March 31, 2020, our material indebtedness consisted of our then outstanding Senior Notes and borrowing on our revolving line of credit with City National Bank (“CNB”) under the Credit Agreement described below.
Senior Notes
In January 2013, JMP Group Inc. raised $46.0 million from the issuance of 8.00% Senior Notes (“2013 Senior Notes”). JMP Group Inc. redeemed $10.0 million of the issued and outstanding 2013 Senior Notes on July 31, 2018 and recorded a loss of $0.2 million related to this partial retirement of the 2013 Senior Notes. On July 18, 2019, JMP Group Inc. redeemed $11.0 million of the issued and outstanding 2013 Senior Notes and recorded a loss of $0.2 million related to this partial retirement of the 2013 Senior Notes. On September 27, 2019, the Company announced JMP Group Inc.’s intention to redeem all of the remaining issued and outstanding 2013 Senior Notes on October 28, 2019. The Company opted to satisfy and discharge its obligations under the 2013 Senior Notes as of September 27, 2019 by paying the principal and owed interest through the redemption date to the trustee, U.S. Bank National Association. On September 27, 2019 the Company deposited sufficient funds with the trustee to satisfy and discharge the 2013 Senior Notes and the trustee acknowledged such satisfaction and discharge. In connection with the redemption, the Company recorded losses on early retirement of debt related to unamortized bond issuance costs of $0.3 million and recognized an additional $0.2 million of interest expense on the accelerated repayment during the quarter ended September 30, 2019.
In November 2017, JMP Group Inc. raised $50.0 million from the issuance of 7.25% Senior Notes (“2017 Senior Notes”). The 2017 Senior Notes will mature on November 15, 2027 and may be redeemed in whole or in part at any time or from time to time at JMP Group Inc.’s option on or after November 28, 2020 at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2017 Senior Notes bear interest at a rate of 7.25% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year. Pursuant to the indenture of the 2017 Senior Notes, JMP Group LLC and JMP Investment Holdings LLC (the “Guarantors”) are the guarantors of the 2017 Senior Notes. The Guarantors jointly and severally provide a full and unconditional guarantee of the due and punctual payment of the principal and interest on the 2017 Senior Notes and the due and punctual payment or performance of all other obligations of JMP Group Inc. under the indenture governing the 2017 Senior Notes.
In September 2019, JMP Group LLC raised $36.0 million from the issuance of 6.875% Senior Notes (“2019 Senior Notes”). The 2019 Senior Notes will mature on September 30, 2029 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after September 30, 2021 at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2019 Senior Notes bear interest at a rate of 6.875% per year, payable quarterly on March 30, June 30, September 30, and December 30 of each year.
In March 2020, the Company repurchased $1.4 million and $0.7 million par value of its issued and outstanding 2019 Senior Notes and 2017 Senior Notes, respectively. Since they were repurchased at less than carrying value, a gain of $0.7 million was recognized upon the repurchase of the bonds, which has been included in the Consolidated Statements of Operations, gain on repurchase, reissuance or early retirement of debt.
JMP Holding LLC Credit Agreement with CNB
JMP Holding LLC (the “Borrower”), a wholly owned subsidiary of the Company, entered into a Second Amended and Restated Credit Agreement dated April 30, 2014 among the Borrower, the lenders from time to time party thereto (the “Lenders”) and CNB, as administrative agent for the Lenders (as amended, the “Credit Agreement”).
The Credit Agreement provides a $25.0 million revolving line of credit (the “Revolver”) through December 31, 2020. On such date, if the revolving period has not been previously extended, any outstanding amounts under the Revolver would convert to a term loan (the “Converted Term Loan”). The Converted Term Loan must be repaid in 12 quarterly installments commencing on January 1, 2021, with each of the first six installments being equal to 3.75% of the principal amount of the Converted Term Loan and each of the next six installments being equal to 5.0% of the principal amount of the Converted Term Loan. A final payment of all remaining principal and interest due under the Converted Term Loan must be made at the earlier of: (a) December 31, 2023; or (b) if certain liquidity requirements are not satisfied by the Company, the date that is last day of the fiscal quarter ending most recently (but no less than 60 days) prior to the earliest maturity date of any senior unsecured notes issued by JMP Group Inc. or JMP Group LLC then outstanding.
The Credit Agreement provides that the Revolver may be used, on a revolving basis, to fund specified permitted investments in collateralized loan obligation vehicles. In addition, up to $5.0 million of the Revolver may be used, on a revolving basis, to fund other types of permitted investments and acquisitions and for working capital.
As of September 30, 2019,March 31, 2020, the Borrower had drawn $15$6.0 million against the Revolver and had letters of credit outstanding under this facility to support office lease obligations of approximately $1.1 million in the aggregate. On October 23, 2019, the Company repaid $9.0 million of the outstanding balance on the Revolver.
The Credit Agreement contains financial and other covenants, including, but not limited to, limitations on debt, liens and investments, as well as the maintenance of certain financial covenants. The Credit Agreement also includes an event of default for a “change of control” that tests, in part, the composition of our ownership and an event of default if three or more of the members of the Company’s executive committee fail to be involved actively on an ongoing basis in the management of the Company or any of its subsidiaries. A violation of any one of these covenants could result in a default under the Credit Agreement, which would permit CNB to terminate our Revolver or Converted Term Loan and require the immediate repayment of any outstanding principal and interest. In addition, our subsidiaries are restricted under the Credit Agreement under certain circumstances from making distributions to us if an event of default has occurred under the Credit Agreement.
As of September 30, 2019March 31, 2020 and December 30, 2018,31, 2019, we were in compliance with the loan covenants under the Credit Agreement.
The Borrowers’s obligations under the Credit Agreement are guaranteed by all of the Company’s other wholly owned subsidiaries (other than JMP Securities and certain dormant subsidiaries) and are secured by substantially all of its and the guarantors’ assets. In addition, we have entered into a limited recourse pledge agreement with CNB whereby JMP Group LLC granted a lien on the equity interests in JMP Investment Holdings LLC and JMPAM to secure the Borrower’s obligations under the Credit Agreement.
JMP Securities LLC Revolving Note Agreement with CNB
Under a Revolving Note and Cash Subordination Agreement (as amended, the “Revolving Note Agreement”) and related Revolving Note (as amended, the “Revolving Note”), each dated April 8, 2011, JMP Securities holds a $20.0 million revolving line of credit with CNB to be used for regulatory capital purposes in connection with its securities underwriting activities. Advances under the Revolving Note Agreement bear interest at CNB’s announced prime interest rate. The unused portion of the line bears interest at the rate of 0.25% per annum, paid monthly.
On June 6, 2019, JMP Securities entered Amendment Number Ten to the Revolving Note Agreement. Pursuant to this amendment, the $20.0 million Revolving Note Agreement was extended for one year until June 8, 2020. On June 8, 2020, any existing outstanding amount under the Revolving Note will convert to a term loan maturing the following year.
There was no borrowing on the Revolving Note as of September 30, 2019March 31, 2020 and December 31, 2018.2019.
The Revolving Note Agreement contains financial and other covenants. A violation of any one of these covenants could result in a default under the Revolving Note, which would permit CNB to terminate the Revolving Note and require the immediate repayment of any outstanding principal and interest, subject to the terms of the Revolving Note Agreement.
At both September 30, 2019March 31, 2020 and December 31, 2018,2019, JMP Securities was in compliance with the loan covenants under the Revolving Note Agreement.
JMP Securities’ obligations under the Revolving Note Agreement are guaranteed by all of the Company’s wholly owned subsidiaries (other than JMP Securities and certain dormant subsidiaries) and are secured by substantially all the guarantors’ assets.
Other JMP Group LLC considerations
On May 13, 2019, the Company launched a self-tender offer (the “Tender“2019 Tender Offer”) to repurchase for cash up to 3,000,000 of shares representing limited liability company interests of the Company. On June 13, 2019, the Company repurchased 1,816,732 shares under the 2019 Tender Offer at a price $3.95 per share for a total purchase price of $7.2 million, excluding fees and expenses related to the 2019 Tender Offer.
On February 24, 2020 the Company launched a second self-tender offer (the “2020 Tender Offer”) to repurchase for cash up to 3,000,000 of shares at $3.25 a share, representing limited liability company interests of the Company, which was terminated on March 19, 2020 as a result of multiple conditions to the 2020 Tender Offer, including share price and market index conditions, not having been satisfied.
During the three months ended March 31, 2020, the Company did not repurchase any of the Company's shares.
On February 19, 2020, the Company suspended its quarterly cash distributions program on outstanding shares.
Upon the securitization of Medalist Partners Corporate Finance CLO VI in February 2020, the Company received $13.7 million in cash from the CLO VI warehouse and recognized a gain of $1.0 million.
The timing of bonus compensation payments to our employees may significantly affect our cash position and liquidity from period to period. While our employees and managing directors are generally paid semi-monthly during the year, bonus compensation, which makes up a larger portion of total compensation, is generally paid once a year during the first two months of the following year. In the first two months of 2019,2020, we paid out $37.1$26.9 million of cash bonuses for 2019, excludingincluding employer payroll tax expense.
The Company currently intends to continue to declare quarterly cash distributions on all outstanding shares. For the three months ended September 30, 2019, the Company declared cash distributions on all outstanding shares on August 1, 2019. The distribution of $0.04 per share for the second quarter of 2019 was paid on August 30, 2019, to shareholders of record as of August 16, 2019.
During the three months ended September 30, 2019, the Company did not repurchase any of the Company's shares.
We had total restricted cash of $1.21.3 million comprised primarily of restricted cash at JMP Group Inc. related to the Company'sCompany’s letters of credit on leasing arrangements.
Because of the nature of our investment banking and sales and trading businesses, liquidity is important to us. Accordingly, we regularly monitor our liquidity position, including our cash and net capital positions. We believe that our available liquidity and current level of equity capital, combined with the funds anticipated to be provided by our operating activities, will be adequate to meet our liquidity and regulatory capital requirements for at least the next twelve months. If circumstances required it, we could improve our liquidity position by discontinuing repurchases of the Company’s common shares, halting cash distributions on our common shares and reducing cash bonus compensation paid.
JMP Securities, our wholly-owned subsidiary and a registered securities broker-dealer, is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined under the Exchange Act, shall not exceed 15 to 1. JMP Securities had net capital of $15.8$8.6 million and $29.8$16.9 million, which were $14.7$7.6 million and $28.7$15.5 million in excess of the required net capital of $1.1$1.0 million and $1.1$1.4 million, at September 30, 2019March 31, 2020 and December 31, 20182019, respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was 1.041.23 to 1 and 0.571.25 to 1 at September 30, 2019March 31, 2020 and December 31, 20182019, respectively.
A condensed table of cash flows for the ninethree months ended September 30,March 31, 2020 and 2019 and 2018 is presented below.
(Dollars in thousands) | Nine Months Ended September 30, | Change from 2018 to 2019 | ||||||||||||||
2019 | 2018 | $ | % | |||||||||||||
Cash flows provided by (used in) operating activities | $ | (30,428 | ) | $ | 7,955 | (38,383 | ) | -482.5 | % | |||||||
Cash flows used in investing activities | (60,810 | ) | (313,385 | ) | 252,575 | -80.6 | % | |||||||||
Cash flows provided by financing activities | 7,671 | 289,838 | (282,167 | ) | -97.4 | % | ||||||||||
Total cash flows | $ | (83,567 | ) | $ | (15,592 | ) | $ | (67,975 | ) | 436.0 | % |
(Dollars in thousands) | Three Months Ended March 31, | Change from 2019 to 2020 | ||||||||||||||
2020 | 2019 | $ | % | |||||||||||||
Cash flows used in operating activities | $ | (23,243 | ) | $ | (43,378 | ) | 20,135 | -46.4 | % | |||||||
Cash flows provided by (used in) investing activities | 13,423 | (50,513 | ) | 63,936 | -126.6 | % | ||||||||||
Cash flows (used in) provided by financing activities | (1,375 | ) | 4,213 | (5,588 | ) | -132.6 | % | |||||||||
Total cash flows | $ | (11,195 | ) | $ | (89,678 | ) | $ | 78,483 | -87.5 | % |
Cash Flows for the ninethree months ended September 30, 2019March 31, 2020
Cash decreased by $83.6$11.2 million during the ninethree months ended September 30, 2019March 31, 2020 as a result of cash used in operating and investingfinancing activities, partially offset by cash provided by financinginvesting activities.
Our operating activities used $$23.230.4 million of cash from a net loss of $0.2$11.8 million, adjusted for the cash used by operating assets and liabilities of $28.8 million, the cash used by non-cash revenue and expense items of $1.9 million and the cash received as investment income from equity method investments of $0.5$11.2 million. The cash used by the change in operating assets and liabilities was primarily due to a decrease in accrued compensation of $23.5$24.7 million, increasesincrease in other assets of $10.2 million, increases in interest receivable of $4.9 million, and decreases in interest payable of $4.0$5.9 million, partially offset by a $9.6an $18.8 million decrease in marketable securities, and a $6.9$3.3 million increasedecrease in other liabilities.receivables.
Our investing activities used $provided $13.460.8 million of cash primarily due to a $35.2$13.7 million funding of loans collateralizing ABS issued, a $27.8 million decrease in cash and restricted cash due to deconsolidation of subsidiaries, $25.7 million of funding of loans held for investment, and $12.5 million of purchases of other investments, partially offset by $23.8 million of receipts from loans collateralizing ABS issued, $10.7 million of receipts from sales and distributions from other investments, and $7.2 million of receipts from loans held for investment.investments.
Our financing activities provided $7.7used $1.4 million of cash primarily due to $36.0$1.3 million repurchase of proceeds from a bond issuance, $16.6 million of proceeds from draw downs on the line of credit, $7.8 million of proceeds from the drawdowns on the CLO warehouse facility, partially offset by $36.0 million repayments on bonds payable, $8.6 million in purchases of common shares from treasury, $2.7 million in distributions and distribution equivalents on common shares and RSUs, $1.9 million of payments on bond issuance costs, $1.6 million in repayments on the line of credit, and $0.9 million of distributions to non-controlling interest shareholders.payable.
Cash Flows for the ninethree months ended September 30, 2018March 31, 2019
Our operating activities provided $8.0used $43.4 million of cash from athe net lossincome of $1.8$5.1 million, adjusted for the cash used by operating assets and liabilities of $0.9$46.2 million, and the cash provided by providedadjusted by non-cash revenue and expense items of $10.7$2.3 million. The cash used by the change in operating assets and liabilities was primarily due to a $9.8 million decrease in accrued compensation of $35.7 million, an increase in other assets of $8.0 million, an increase in interest receivable of $4.8 million, and a $2.3decrease in interest payable of $3.5 million, partially offset by a $3.2 million increase in other liabilities and a $3.6 million decrease in marketable securities sold, but not yet purchased, and a $1.5 million decrease in receivables, partially offset by a $6.9 million decrease in deposits and other assets, a $3.9 million increase in interest payable, and a $2.0 million increase in other liabilities.securities.
Our investing activities used $313.4 $50.5 million of cash primarily due to a $307.8$35.2 million funding of loans collateralizing ABSasset-backed securities issued, $27.8 million decrease in cash and $312.0restricted cash due to deconsolidation of subsidiaries, and $25.1 million of funding forof loans held for investment, partially offset by $268.2$23.8 million of receipts from loans collateralizing ABSasset-backed securities issued, $26.7$8.3 million of receipts from sales and distributions from other investments, and $6.9 million in receipts from loans held for investment, and $13.9 million in sales or distributions from other investments.investment.
Our financing activities provided $289.8$4.2 million of cash primarily due to $699.1$7.8 million of proceeds from the issuance of ABS issued, $263.8 million of proceeds from draw downs ondrawdowns the CLO warehouse facilities, $4.5 million on proceeds from reissuance of ABS issued, and $3.9 million of proceeds from the Repurchase Agreement,facility, partially offset by the repurchase of $332.1$1.1 million of ABS issued, $10.0 million of repayments on bonds payable, $5.9 million ofin distributions and distributionsdistribution equivalents paid on common shares and RSUs $3.9and $0.9 million of payments on the Repurchase Agreement, and $1.9 million in payments on debt issuance costs.distributions to non-controlling interest shareholders.
Contractual Obligations
As of September 30, 2019March 31, 2020, our aggregate minimum future commitment on our leases was $30.6$28.1 million. See Note 9 of the notes to the consolidated financial statements for more information. Our remaining contractual obligations have not materially changed from those reported in our Annual Report.
Off-Balance Sheet Arrangements
The Company had unfunded commitments to lend of $0.8 million and $1.4 million as of September 30, 2019 and December 31, 2018, respectively. Had the borrower drawn on these, the Company would have been obligated to fund them. The funds for the unfunded commitments to lend and the cash collateral supporting these standby letters of credit are included in restricted cash on the Consolidated Statements of Financial Position as of December 31, 2018. The CLO-related commitments do not extend to JMP Group LLC. See Note 22 of the notes to the consolidated financial statements for more information on the financial instruments with off-balance sheet risk in connection with the CLOs.
Unfunded commitments are agreements to lend to a borrower, provided that all conditions have been met. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each borrower’s creditworthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a borrower to a third party. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to borrowers.
We had no other material off-balance sheet arrangements as of September 30, 2019March 31, 2020. However, as described below under “Item 3. Quantitative and Qualitative Disclosures About Market Risk,” through indemnification provisions in our clearing agreements with our clearing broker, customer activities may expose us to off-balance sheet credit risk, which we seek to mitigate through customer screening and collateral requirements.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and of revenues and expenses during the reporting periods. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. The use of different estimates and assumptions could produce materially different results. For example, if factors such as those described under the caption “Risk Factors” in our Annual Report cause actual events to differ from the assumptions we used in applying the accounting policies, our results of operations, financial condition and liquidity could be adversely affected.
On an ongoing basis, we evaluate our estimates and assumptions, particularly as they relate to accounting policies that we believe are most important to the presentation of our financial condition and results of operations. We regard an accounting estimate or assumption to be most important to the presentation of our financial condition and results of operations where:
• | the nature of the estimates or assumptions is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and |
• | the impact of the estimates or assumptions on our financial condition or operating performance is material. |
Using the foregoing criteria, we consider the following to be our critical accounting policies:
● | Valuation of Financial Instruments |
● | Asset Management Investment Partnerships |
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● | Legal and Other Contingent Liabilities |
● | Income Taxes |
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Our significant accounting policies are described further in the “Critical Accounting Policies and Estimates” section and Note 2 - Summary of Significant Accounting Policies in these financial statements and to our consolidated financial statements in our Annual Report.
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not Applicable.
ITEM 4. | Controls and Procedures |
(a) | Disclosure Controls and Procedures |
Our management, with the participation of the Chairman and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer (the principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act)Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.Quarterly Report on Form 10-Q. Based on that evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer, as principal executive officer and principal financial officer, respectively, have concluded that, as of the end of thesuch period covered by this report, our disclosure controls and procedures are effective.
(b) | Changes in Internal Controls Over Financial Reporting |
There waswere no changechanges in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this reportQuarterly Report on Form 10-Q that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. | Legal Proceedings |
We are involved in a number of judicial, regulatory and arbitration matters arising in connection with our business. The outcome of matters we have been and currently are involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on our results of operations in any future period and a significant judgment could have a material adverse impact on our financial condition, results of operations and cash flows. We may in the future become involved in additional litigation in the ordinary course of our business, including litigation that could be material to our business. Management, after consultation with legal counsel, believes that , except as described below, the currently known actions or threats against us will not result in any material adverse effect on our financial condition, results of operations or cash flows.
In December 2019, plaintiffs in a class action lawsuit and the Company, as defendant, entered into an agreement to settle such lawsuit by paying $3.0 million (the “Settlement Amount”) into a settlement fund escrow account following the preliminary approval of such settlement by the Eighth Judicial District Court of Nevada, whose approval was granted on March 9, 2020. Concurrently with entering into the settlement agreement, the Company entered into an agreement with a third party indemnifying the Company with respect to such lawsuit whereby such indemnifying party would pay the Settlement Amount into the settlement fund escrow account on behalf of the Company at the time such payment was to come due on March 30, 2020. As of December 31, 2019, the indemnification payment receivable and settlement liability were separately recorded and included in the Consolidated Statements of Financial Condition within other assets and other liabilities. In March 2020, the indemnifying party timely paid the Settlement Amount into the settlement fund escrow account, and as a result, both the indemnification receivable and the settlement liability were removed from the Consolidated Statement of Financial Condition with no impact on the Company’s results of operations or cash flows.
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ITEM 1A. | Risk Factors |
The riskIn addition to the other information set forth in this report, you should carefully review and consider the information regarding certain factors includedthat could materially affect our business, financial condition, or future results set forth under Item 1A. “Risk Factors” in our Annual Report continue to apply to us, and describe risks and uncertainties that could cause actual results to differ materially fromon Form 10-K for the results expressed or implied byyear ended December 31, 2019 filed with the forward-looking statements contained in this Quarterly Report. ThereSEC on March 30, 2020.
Except as noted below, there have not been anyno material changes from the risk factors previously describeddisclosed in our Annual Report.Report on Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
The effects of the outbreak of the novel coronavirus (“COVID-19”) have negatively affected the global economy, the United States economy and the global financial markets, and may disrupt our operations and our clients’ operations, which could have an adverse effect on our business, financial condition and results of operations.
The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability, and has and may continue to may affect our operations. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The continued impact of COVID-19 may result in a period of business disruption, including delays in our trading.
In addition, in response to the COVID-19 pandemic, and in accordance with direction from state and local government authorities, we have made temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring most employees to work remotely (which in turn increases our threat to cyber security and data accessibility and communication matters) and suspending all non-essential travel worldwide for our employees. In addition, industry events and in-person work-related meetings have been cancelled, the continuation of which could negatively affect our business.
Many of the key service providers we rely on also have transitioned to working remotely. If we or they were to experience material disruptions in the ability for our or their employees to work remotely (e.g., disruption in Internet-based communications systems and networks; or the break-down in the availability of essential goods and services, such as material disruptions to the delivery of food or power), our ability to operate our business normally could be materially adversely disrupted. Similarly, to date our own employees and, we believe, the employees of our key service providers, have not experienced any material degree of illness due to the COVID-19 virus. In the event that our or their workforces, or key components thereof, were to experience significant illness levels, our ability to operate our business normally could be materially adversely disrupted. Any such material adverse disruptions to our business operations could have a material adverse impact on our results of operation or financial condition.
We are taking precautions to protect the safety and well-being of our employees and customers. However, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employee’s ability to provide customer support and service. The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, as well as the trading prices for our own securities. The further spread of the COVID-19 outbreak may materially disrupt banking and other financial activity generally and in the areas in which we operate. This would likely result in a decline in demand for our products and services, which would negatively impact our liquidity position and our growth strategy. Any one or more of these developments could have a material adverse effect on our and our consolidated subsidiaries’ business, operations, consolidated financial condition, and consolidated results of operations.
We are closely monitoring the global outbreak of COVID-19. At this time, we cannot predict the ultimate scope, severity or duration of the outbreak or its effects on, among other things, the global, national or local economy, the capital and credit markets, or our workforce, customers and suppliers. As a result, we cannot predict the full extent of the adverse financial impact that COVID-19 will have on our businesses, financial condition, liquidity and results of operations. If we or any of the third parties with whom we engage, however, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business and our results of operation and financial condition.
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the quarter ended September 30, 2019,March 31, 2020, no purchases of the Company'sCompany’s shares was made by or on behalf of JMP Group LLC. As of September 30, 2019,March 31, 2020, there were no shares available to be repurchased as part of publicly announced programs or plans.
ITEM 3. | Defaults Upon Senior Securities |
None.
ITEM 4. | Mine Safety Disclosures |
Not Applicable.
ITEM 5. | Other Information |
None.
ITEM 6. | Exhibits |
See Exhibit Index.
_________
*Filed herewith
** Furnished, not filed
JMP Group LLC | |||
By: | /s/ JOSEPH A. JOLSON | ||
Name: | Joseph A. Jolson | ||
Title: | Chairman and Chief Executive Officer | ||
By: | /s/ RAYMOND S. JACKSON | ||
Name: | Raymond S. Jackson | ||
Title: | Chief Financial Officer |
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