jmpllc20170930_10q.htm
 

 



 

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 March 31, 2020 OR

 

 

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 other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

 

600 Montgomery Street, Suite 1100, San Francisco, California 94111

(Address of principal executive offices and Zip code)

 

(415) 835-8900

(Registrant’s telephone number, 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   JMPNZ   The NASDAQ Global Market
JMP Group Inc. 7.25% Senior Notes due 2027   JMPNL   The NASDAQ Global Market

 

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 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

       

Non-accelerated filer

 

 

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 May 5, 2020: 19,577,409.

 



 

 

 

 

 
 

Table of Contents

 

 

TABLE OF CONTENTS

 

 

 

Page

PART I.

FINANCIAL INFORMATION

4

     

Item 1.

Financial Statements - JMP Group LLC

4

 

Consolidated Statements of Financial Condition – March 31, 2020 (Unaudited) and December 31, 2019

4

 

Consolidated Statements of Operations - For the Three Months Ended March 31, 2020 and 2019 (Unaudited)

5

  Consolidated Statements of Comprehensive Income (Loss) - For the Three Months Ended March 31, 2020 and 2019 (Unaudited) 6
 

Consolidated Statements of Changes in Shareholders' Equity - For the Three Months Ended March 31, 2020 and 2019 (Unaudited)

7

 

Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2020 and 2019 (Unaudited)

8

 

Notes to Consolidated Financial Statements (Unaudited)

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

48

     

PART II.

OTHER INFORMATION

49

     

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

50

   

EXHIBIT INDEX

51

   

SIGNATURES

52

 

2

 

 

 

 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”). 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. 

 

3

 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

Financial Statements

 

JMP Group LLC

Consolidated Statements of Financial Condition

(Unaudited)

(Dollars in thousands, except share and per share data)

 

 

   

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  
                 

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  
                 

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)

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.

 

4

 

 

 

JMP Group LLC

Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 
                 

Revenues

               

Investment banking

  $ 14,625     $ 11,879  
Brokerage     4,187       4,535  
Asset management fees     1,716       1,703  
Principal transactions     (17,552 )     5,288  
Loss on sale, payoff and mark-to-market of loans     -       (17 )
Net dividend income     227       296  
Other income (loss)     935       (35 )
Non-interest revenues     4,138       23,649  
                 
Interest income     2,214       14,291  
Interest expense     (1,782 )     (10,773 )
Net interest income     432       3,518  
                 
Gain on repurchase, reissuance or early retirement of debt     697       -  
Total net revenues     5,267       27,167  
                 

Non-interest expenses

               
Compensation and benefits     16,213       17,222  
Administration     2,222       1,929  
Brokerage, clearing and exchange fees     634       701  
Travel and business development     922       1,021  
Managed deal expenses     588       533  
Communications and technology     1,129       1,053  
Occupancy     1,199       1,423  
Professional fees     890       1,456  
Depreciation     548       297  
Other     -       495  
Total non-interest expenses     24,345       26,130  
Net income (loss) before income taxes     (19,078 )     1,037  
Income tax benefit     (7,239 )     (4,102 )
Net income (loss)     (11,839 )     5,139  
Less: Net income (loss) attributable to non-controlling interest     (91 )     70  

Net income (loss) attributable to JMP Group LLC

  $ (11,748 )   $ 5,069  
                 

Net income (loss) attributable to JMP Group LLC per common share:

               

Basic

  $ (0.60 )   $ 0.24  

Diluted

  $ (0.60 )   $ 0.24  
                 

Weighted average common shares outstanding:

               
Basic     19,532       21,288  
Diluted     19,532       21,429  

 

See accompanying notes to consolidated financial statements.

 

5

 

 

 

JMP Group LLC

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Net income (loss)

  $ (11,839 )   $ 5,139  

Other comprehensive income (loss):

               
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 )

Comprehensive income (loss)

    (10,558 )     4,357  
Less: Comprehensive income (loss) attributable to non-controlling interest     (91 )     70  
Comprehensive income (loss) attributable to JMP Group LLC   $ (10,467 )   $ 4,287  
                 

 

See accompanying notes to consolidated financial statements. 

 

6

 

 

 

JMP Group LLC

Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)

(In thousands)

 

   

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

    22,797     $ 23     $ (14,872 )   $ 133,894     $ (52,588 )   $ (4,769 )   $ (327 )   $ 61,361  

Net loss

    -       -       -       -       (11,748 )     -       (91 )     (11,839 )

Additional paid-in capital - share-based compensation

    -       -       -       266       -       -       -       266  

Purchases of shares of common shares for treasury

    -       -       (26 )     -       -       -       -       (26 )

Reissuance of shares of common shares from treasury

    -       -       200       (32 )     -       -       -       168  

Other comprehensive income

    -       -       -       -       -       1,281       -       1,281  

Balance, March 31, 2020

    22,797     $ 23     $ (14,698 )   $ 134,128     $ (64,336 )   $ (3,488 )   $ (417 )   $ 51,212  

 

 

   

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, 2018

    22,780     $ 23     $ (7,932 )   $ 134,129     $ (42,513 )   $ -     $ 13,499     $ 97,206  

Net income (loss)

    -       -       -       -       5,069       -       70       5,139  

Additional paid-in capital - share-based compensation

    -       -       -       144       -       -       -       144  

Distributions and distribution equivalents declared on common shares and restricted share units

    -       -       -       -       (1,070 )     -       -       (1,070 )

Purchases of shares of common shares for treasury

    -       -       (753 )     -       -       -       -       (753 )

Reissuance of shares of common shares from treasury

    -       -       357       (39 )     -       -       -       318  

Distributions to non-controlling interest holders

    -       -       -       -       -       -       (913 )     (913 )

Derecognition of non-controlling interest due to deconsolidation

    -       -       -       -       -       -       (12,842 )     (12,842 )

Other comprehensive loss

    -       -       -       -       -       (782 )     -       (782 )

Balance, March 31, 2019

    22,780     $ 23     $ (8,328 )   $ 134,234     $ (38,514 )   $ (782 )   $ (186 )   $ 86,447  

 

See accompanying notes to consolidated financial statements.

 

7

 
 

 

JMP Group LLC

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Cash flows from operating activities:

               
Net (loss) income   $ (11,839 )   $ 5,139  

Adjustments to reconcile net loss (income) to net cash used in operating activities:

               

Gain on repurchase, reissuance or early retirement of debt

    (697 )     -  

Change in other investments:

               

(Income) loss from investments in equity method investees

    (297 )     46  

Gain on other investments

    (292 )     (1,192 )

Depreciation and amortization

    435       1,827  

Share-based compensation expense

    432       462  

Gain on deconsolidation

    -       (3,520 )

Distributions of investment income from equity method investments

    256       -  

Other, net

    6       76  

Net change in operating assets and liabilities:

               

Decrease (increase) in interest receivable

    110       (4,838 )

Decrease in receivables

    3,309       1,039  

Decrease in marketable securities

    18,828       3,563  

Increase in other assets

    (5,940 )     (7,978 )

Decrease in marketable securities sold, but not yet purchased

    (1,896 )     (1,930 )

Increase (decrease) in interest payable

    191       (3,548 )

Decrease in accrued compensation

    (24,661 )     (35,695 )

(Decrease) increase in other liabilities

    (1,188 )     3,171  
Net cash used in operating activities     (23,243 )     (43,378 )
                 

Cash flows from investing activities:

               

Purchases of fixed assets

    (266 )     (637 )

Purchases of other investments

    (39 )     (844 )

Sales or distributions from other investments

    13,694       8,312  

Funding of loans collateralizing asset-backed securities issued

    -       (35,153 )

Funding of loans held for investment

    -       (25,102 )

Sale, payoff and principal receipts of loans collateralizing asset-backed securities issued

    -       23,806  

Sale, payoff and principal receipts on loans held for investment

    34       6,876  

Net decrease in cash and restricted cash due to deconsolidation of subsidiaries

    -       (27,771 )

Net cash provided by (used in) investing activities

    13,423       (50,513 )

 

See accompanying notes to consolidated financial statements.

 

8

 

 

JMP Group LLC

Consolidated Statements of Cash Flows - (Continued)

(Unaudited)

(In thousands)

 

   

Three Months Ended March 31,

 
   

2020

   

2019

 

Cash flows from financing activities:

               

Proceeds from drawdowns on CLO warehouse facilities

    -       7,750  

Repayment of asset-backed securities issued

    -       (801 )

Repurchase of bonds payable

    (1,349 )     -  

Distributions and distribution equivalents paid on common shares and RSUs

    -       (1,070 )

Purchase of common shares for treasury

    -       (669 )

Distributions to non-controlling interest shareholders

    -       (913 )

Employee taxes paid on shares withheld for tax-withholding purposes

    (26 )     (84 )

Net cash (used in) provided by financing activities

    (1,375 )     4,213  
Net decrease in cash, cash equivalents, and restricted cash     (11,195 )     (89,678 )

Cash, cash equivalents and restricted cash, beginning of period

    50,917       132,808  
Cash, cash equivalents and restricted cash, end of period   $ 39,722     $ 43,130  
                 

Supplemental disclosures of cash flow information:

               

Cash paid during the period for interest

  $ 1,680     $ 14,321  
Cash paid (received) during the period for taxes, net of refunds   $ (7 )   $ 89  
                 

Non-cash investing and financing activities:

               

Reissuance of common shares from treasury related to vesting of restricted share units

  $ 200     $ 357  

Distributions declared but not yet paid

  $ -     $ 640  

Acquisition of equity securities in restructuring of loans

  $ -     $ 259  

Initial recognition of operating lease right-of-use assets

  $ -     $ 23,604  

Initial recognition of operating lease right-of-use liabilities

  $ -     $ 29,278  

Carrying value of noncash assets derecognized on deconsolidation of subsidiaries

  $ -     $ 1,226,848  

Carrying value of noncash liabilities derecognized on deconsolidation of subsidiaries

  $ -     $ 1,161,933  

Carrying value of non-controlling interest derecognized on deconsolidation of subsidiaries

  $ -     $ 12,842  

Fair value of marketable securities recognized on deconsolidation of subsidiaries

  $ -     $ 76,879  

Fair value of other investments recognized on deconsolidation of subsidiaries

  $ -     $ 7,516  

 

See accompanying notes to consolidated financial statements. 

 

9

JMP Group LLC

Notes to Consolidated Financial Statements

March 31, 2020

(Unaudited)

 

 

1. Organization and Description of Business

 

       JMP Group LLC, together with its subsidiaries (collectively, the “Company”), is a diversified financial 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”) (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 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.

 

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 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.

 

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, 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. After the sale, JMPCA was renamed Medalist Partners Corporate Finance LLC (“MPCF”).

 

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. 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 continues to hold 100% of the junior subordinated notes of CLO IV and CLO V and accounts for its ownership of these subordinated notes as an investment in a debt security and classifies them as available-for-sale securities. The Company owned approximately 33% of the equity interests of the CLO VI warehouse as of December 31, 2019. In February 2020, MPCF completed the securitization of Medalist Partners Corporate Finance CLO 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.  

 

10

 

 

 

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, 2019 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.

 

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 March 31, 2020 and December 31, 2019 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.

 

   See Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report for the Companys significant accounting policies.

 

For the three months ended March 31, 2020, there were no significant changes made to the Company’s significant accounting policies other than those described below. 

 

 

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 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, was issued in December 2019 to simplify the accounting for income taxes. This guidance eliminates certain exceptions to the general approach to the income tax accounting model, and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods. The Company is currently evaluating the impact of the adoption of this standard.

 

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. We adopted the guidance effective January 1, 2020; however, the adoption did not have a material impact on our Consolidated Statements of Financial Conditions or Consolidated Statements of Operations or on the disclosures in our Notes to the Consolidated Financial Statements.

 

 

11

 

 

 

4. Fair Value Measurements

 

The following tables provide fair value information related to the Company’s financial instruments at March 31, 2020 and December 31, 2019:

 

   

March 31, 2020

 

(In thousands)

 

Carrying Value

   

Fair Value

 
           

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets:

                                       
Cash and cash equivalents   $ 38,435     $ 38,435     $ -     $ -     $ 38,435  
Restricted cash and deposits     1,287       1,287       -       -       1,287  
Marketable securities owned     56,024       9,804       -       46,220       56,024  
Other investments     3,267       -       -       3,267       3,267  
Other investments, measured at net asset value (1)     10,201       -       -       -       -  
Loans held for sale     2,412       -       -       2,412       2,412  
Loans held for investment, net of allowance for loan losses     1,181       -       -       1,093       1,093  

Total assets:

  $ 112,807     $ 49,526     $ -     $ 52,992     $ 102,518  
                                         

Liabilities:

                                       
Marketable securities sold, but not yet purchased   $ 1,959     $ 1,959     $ -     $ -     $ 1,959  
Notes payable     6,812       -       5,983       829       6,812  
Bond payable     80,636       -       54,210       -       54,210  
Total liabilities:   $ 89,407     $ 1,959     $ 60,193     $ 829     $ 62,981  

 

 

   

December 31, 2019

 

(In thousands)

 

Carrying Value

   

Fair Value

 
           

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets:

                                       

Cash and cash equivalents

  $ 49,630     $ 49,630     $ -     $ -     $ 49,630  

Restricted cash and deposits

    1,287       1,287       -       -       1,287  

Marketable securities owned

    73,101       15,245       -       57,856       73,101  

Other investments

    3,956       -       -       3,956       3,956  

Other investments, measured at net asset value (1)

    10,250       -       -       -       -  

Loans held for sale

    2,412       -       -       2,476       2,476  

Loans held for investment, net of allowance for loan losses

    1,210       -       -       1,087       1,087  

Total assets:

  $ 141,846     $ 66,162     $ -     $ 65,375     $ 131,537  
                                         

Liabilities:

                                       

Marketable securities sold, but not yet purchased

  $ 3,855     $ 3,855     $ -     $ -     $ 3,855  

Notes payable

    6,812       -       5,983       829       6,812  

Bond payable

    82,584       -       84,821       -       84,821  

Total liabilities:

  $ 93,251     $ 3,855     $ 90,804     $ 829     $ 95,488  

 

 

 

(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 Consolidated Statements of Financial Position. The carrying values of these lines reconciles to the parenthetical disclosure of other investments on the Statements of Financial Condition.

 

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.

 

12

 

 

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 March 31, 2020 and December 31, 2019: 

 

(In thousands)

         

March 31, 2020

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                         

Marketable securities owned

  $ 56,024     $ 9,804     $ -     $ 46,220     $ 56,024  

Other investments:

                                       
Equity investments     3,267       -       -       3,267       3,267  
Investments in other funds managed by the Company (1)     5,211       -       -       -       -  
Limited partnership in investments in private equity/ real estate funds (1)     4,990       -       -       -       -  
Total other investments     13,468       -       -       3,267       3,267  

Total assets:

  $ 69,492     $ 9,804     $ -     $ 49,487     $ 59,291  
                                         
Marketable securities sold, but not yet purchased     1,959       1,959       -       -       1,959  
                                         
Total liabilities:   $ 1,959     $ 1,959     $ -     $ -     $ 1,959  

 

 

(In thousands)

         

December 31, 2019

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                         

Marketable securities owned

  $ 73,101     $ 15,245     $ -     $ 57,856     $ 73,101  

Other investments:

                                       

Equity investments

    3,956       -       -       3,956       3,956  

Investments in other funds managed by the Company (1)

    5,188       -       -       -       -  

Limited partnership in investments in private equity/ real estate funds (1)

    5,062       -       -       -       -  

Total other investments

    14,206       -       -       3,956       3,956  

Total assets:

  $ 87,307     $ 15,245     $ -     $ 61,812     $ 77,057  
                                         

Marketable securities sold, but not yet purchased

    3,855       3,855       -       -       3,855  
                                         

Total liabilities:

  $ 3,855     $ 3,855     $ -     $ -     $ 3,855  

 

 

(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 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.

 

As of March 31, 2020 and December 31, 2019, marketable securities sold but not yet purchased were primarily comprised of U.S. listed securities. As of March 31, 2020 and December 31, 2019, marketable securities was comprised of U.S. listed equity securities and CLO debt securities. 

 

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 three months ended March 31, 2020 and the year ended December 31, 2019.

 

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.

 

 

 

13

 

The Company’s Level 3 assets in other investments is primarily comprised of an equity investment in a private company. The Company determines the fair value of this investment using the net present value of discounted cash flows. The significant unobservable inputs used in the fair value measurement of this investment are presented in the Significant Unobservable Inputs table below. For this investment, the Company elected the fair value option. While the Company has made other investments in private equity securities, it has not elected the fair value option for those investments as it is impractical to determine the fair value of those investments.

 

For the three months ended March 31, 2020, the changes in Level 3 assets measured at fair value on a recurring basis were as follows:

 

(In thousands)

  CLO junior subordinated notes    

Equity Investment

   

Total

 

Balance as of December 31, 2019

  $ 57,856     $ 3,956     $ 61,812  

Accrued interest

    2,176       -       2,176  

Investment distributions

    (2,040 )     -       (2,040 )

Unrealized gains on investments, recognized in OCI

    1,751       -       1,751  

Unrealized losses on investments, recognized in earnings

    (13,523 )     (689 )     (14,212 )

Balance as of March 31, 2020

  $ 46,220     $ 3,267     $ 49,487  

 

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 of these investments are presented in the Significant Unobservable Inputs table below. The Company also uses covenant compliance information provided by the CLO manager when valuing this investment. During the three months ended March 31, 2020, the fair value of the Company’s investment in CLO debt securities declined due to a decrease in 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 determined to be impaired and the Company recorded a $13.5 million impairment charge which is included in principal transaction revenues on the Consolidated Statements of Operations.

 

 

14

 

 

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 investment, a significant increase (decrease) in the credit factor or the discount rate would result in a significantly lower (higher) fair value measurement. For Level 3 assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

 

       

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

    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)                  
       

Collateral liquidation price

    98.0%-99.0% (98.7%)       98.0%-99.0% (98.7%)                  

Equity investment

 

Discounted cash flows

 

Credit factor

    20% (N/A)       20% (N/A)     $ 2,861     $ 3,550  
       

Discount rate

    16.5% (N/A)       17.7% (N/A)                  
                                         

(1)

The weighted average was calculated based on the relative collateral balance of each CLO.

 

 

As of March 31, 2020 and December 31, 2019, $10.2 million and $10.3 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:

 

               

Fair Value at

   

Unfunded Commitments

 
    Redemption Notice     Redemption Notice       March 31,       December 31,       March 31,       December 31,  

Dollars in thousands

 

Frequency

 

Period

   

2020

   

2019

   

2020

   

2019

 
                                             

Limited partner investments in private equity/ real estate funds

 

Nonredeemable

    N/A     $ 4,990     $ 5,062     $ 2,084     $ 2,123  

Investment in other funds managed by the Company

 

Nonredeemable

    N/A     $ 5,211     $ 5,188     $ 1,677     $ 1,677  

 

Non-recurring Fair Value Measurements

 

The Company's assets 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 a loan measured at fair value on a non-recurring basis of $2.4 million as of March 31, 2020 and December 31, 2019.

 

 

5. Available-for-Sale Securities

 

 

  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 March 31, 2020 and December 31, 2019:

 

   

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

  $ 50,990     $ -     $ (4,770 )   $ 46,220       3     $ 64,377     $ -     $ (6,521 )   $ 57,856       3  

 

15

 

 

   The following table summarizes the fair value and amortized cost of the available-for-sale securities by contractual maturity as of March 31, 2020 and December 31, 2019:

 

   

March 31, 2020

   

December 31, 2019

 

(In thousands)

 

Available-for-sale

   

Available-for-sale

 
   

Amortized cost

   

Fair value

   

Amortized cost

   

Fair value

 

5-10 years

  $ 30,262       26,882     $ 38,451       33,877  

10+ years

    20,728       19,338       25,926       23,979  

Total

  $ 50,990     $ 46,220     $ 64,377     $ 57,856  

 

 

During the three months ended March 31, 2020 and 2019, the Company recognized impairment losses on CLO debt securities of $13.5 million and zero, respectively, due to the fair value of the debt securities being less than the amortized cost. 

 

 

 

6. Loans 

 

Loans collateralizing Asset-Backed Securities issued (through March 2019)

 

During the period ending 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 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 months ended March 31, 2019 is as follows:

 

(In thousands)

 

Three Months Ended March 31,

 
   

2019

 
   

Impaired

   

Non-Impaired

 

Balance, at beginning of period

  $ (836 )   $ (9,751 )

Provision for loan losses:

               

Specific reserve

    -       -  

General reserve

    -       -  

Charge off

    181       -  

Derecognition due to deconsolidation

    655       9,751  

Balance, at end of period

  $ -     $ -  

 

16

 

 

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.

 

There were no loans impaired, past due or on non-accrual status as of March 31, 2020 and 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 months ended March 31, 2019 is as follows:

 

(in thousands)

 

Three Months Ended March 31,

 
   

2019

 
   

Impaired

   

Non-impaired

 

Balance, at beginning of the period

  $ (218 )   $ (181 )

Provision for loan losses

               

Specific

    -       -  

General

    -       -  

Charge off

    218       -  

Derecognition due to deconsolidation

    -       181  

Balance, at end of the period

  $ -     $ -  

 

   

17

 

 

 

7. Debt

 

Bond Payable

 

(In thousands)

 

March 31, 2020

   

December 31, 2019

 
                 

7.25% Senior Notes due 2027

  $ 50,000     $ 50,000  
6.875% Senior Notes due 2029     36,000       36,000  

Total outstanding principal

  $ 86,000     $ 86,000  

Less: Debt issuance costs

    (3,229 )     (3,416 )
Less: Consolidation elimination     (2,135 )     -  

Total bond payable, net

  $ 80,636     $ 82,584  

 

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 $25.0 million principal amount of 8.00% senior notes (the “2013 Senior 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 year ended 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

 

The 7.25% senior notes due 2027 (the “2017 Senior Notes”) and the 2019 Senior Notes (collectively with the 2017 Senior Notes the “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 March 31, 2020 and December 31, 2019, the Company was in compliance with the debt covenants in the indentures. 

 

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 March 31, 2020 were as follows:

 

(In thousands)

       
         

2020

  $ -  

2021

    -  

2021

    -  

2022

    -  

2023

    -  

Thereafter

    86,000  

Total

  $ 86,000  

 

 

Note Payable, Lines of Credit and Credit Facilities

 

(In thousands)

 

Outstanding Balance

 
   

March 31, 2020

   

December 31, 2019

 
                 

$25 million, JMP Holding credit agreement through December 31, 2020

    5,983     $ 5,983  

Note payable to an affiliate (Note 18)

    829       829  

Total note payable, lines of credit, and credit facilities

  $ 6,812     $ 6,812  

 

The Company’s Credit Agreement (the “Credit Agreement”) dated as of April 30, 2014, was entered by and between JMP Holding LLC (“JMP Holding”) and City National Bank (“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 $6.0 million as of March 31, 2020 and December 30, 2019, respectively. As of 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.

 

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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 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 March 31, 2020 and December 31, 2019, we were in compliance with the loan covenants.

 

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 Subordination 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 March 31, 2020 or December 31, 2019. The line of credit bears interest at a rate to be agreed upon at the time of advance between the Company and CNB.

 

 

 

8. Other Assets and Other Liabilities

 

At March 31, 2020 and December 31, 2019, other assets and other liabilities consisted of the following:

 

(In thousands)

     
   

March 31, 2020

   

December 31, 2019

 

Accounts receivable

  $ 4,361     $ 7,053  

Prepaid expenses

    12,469       5,152  

Deferred tax asset

    21,684       21,406  

Loans held for sale

    2,412       2,412  

Other assets

    269       230  

Total other assets

  $ 41,195     $ 36,253  

 

 

Loans held for sale are carried at the lower of cost or fair value less cost to sell and have been included in other assets in the Consolidated Statement of Financial Condition.

 

 

(In thousands)

               
   

March 31, 2020

   

December 31, 2019

 

Accounts payable & accrued liabilities

  $ 6,408     $ 5,015  

Deferred compensation liabilities

    2,897       2,517  

Deferred tax liability

    8,118       8,645  

Other liabilities

    340       3,301  

Total other liabilities

  $ 17,763     $ 19,478  

 

 
9. Leases
 
Substantially all of the leases in which the Company is the lessee are office space leases with various terms with the maximum duration through 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. 
 

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.

 

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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:

 
   

March 31, 2020

 

Weighted-average remaining lease term

       

Operating leases

    5.07  

Weighted-average discount rate

       

Operating leases

    6.13 %
 
The Company leases office space in California, Illinois, Massachusetts, Minnesota, Florida, and New York under various operating leases. Occupancy expense were $1.2 million and $1.4 million for the quarters ended March 31, 2020 and 2019, respectively. 
 
The California, Illinois, Minnesota and New York leases included a period of free rent at the start of the lease. Rent expense is recognized over the entire lease period. The aggregate minimum future lease payments of these leases are:
 
(In thousands)     Minimum Future Lease Payments  

Year Ending December 31,

       

2020

  $ 4,249  
2021     5,758  
2022     5,714  
2023     5,710  
2024     4,225  
Thereafter     2,458  
Total minimum future lease payments     28,114  
Amounts representing interest     (3,755 )

Present value of net future minimum lease payments

  $ 24,359  

 

 

   

Three Months Ended

 
   

March 31, 2020

 

Cash paid for amounts included in the measurement of lease liabilities

       

Cash used in operating activities

  $ 1,652  

Operating leases

  $ 1,652  

 

 

10. Shareholders’ Equity

 

Self-Tender Offers

 

On May 13, 2019, the Company launched a self-tender offer (the “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’s outstanding common shares. The 2019 Tender Offer expired on June 13, 2019. The 2019 Tender Offer resulted in the Company’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.

 

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.

 

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11. Accumulated Other Comprehensive Income (Loss)

 

The following tables summarize the unrealized gains and losses on available-for-sale securities included in accumulated other comprehensive income (losses), before tax, tax effect, and net of tax, for the three months ended March 31, 2020 and 2019:

 

(In thousands)

 

Before Tax

   

Tax Effect

   

Net of Tax

 

Beginning balance, January 1, 2020

  $ (6,521 )   $ 1,752     $ (4,769 )

Net unrealized losses on available-for-sale securities during the period

    (11,772 )     3,163       (8,609 )
Reclassification adjustment for losses on available-for-sale securities     13,523       (3,633 )     9,890  

Balance as of March 31, 2020

  $ (4,770 )   $ 1,282     $ (3,488 )

 

(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

    (1,055 )     273       (782 )

Balance as of March 31, 2019

  $ (1,055 )   $ 273     $ (782 )

 

 

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 three months ended March 31, 2020:

 

   

Three Months Ended

 
   

March 31, 2020

 
   

Shares Subject to Option

   

Weighted Average Exercise Price

 
                 

Balance, beginning of year

    -     $ -  
Granted     2,400,000       3.04  
Forfeited     (200,000 )     3.04  

Balance, end of period

    2,200,000     $ 3.04  
                 

Options exercisable at end of period

    -     $ -  

 

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The following table summarizes the share options outstanding as well as share options vested and exercisable as of March 31, 2020:

 

   

March 31, 2020

 
   

Options Outstanding

   

Options Vested and Exercisable

 
                                                                 
           

Weighted

                           

Weighted

                 
           

Average

   

Weighted

                   

Average

   

Weighted

         

Range of

         

Remaining

   

Average

   

Aggregate

           

Remaining

   

Average

   

Aggregate

 

Exercise

 

Number

   

Contractual

   

Exercise

   

Intrinsic

   

Number

   

Contractual

   

Exercise

   

Intrinsic

 

Prices

 

Outstanding

   

Life in Years

   

Price

   

Value

   

Exercisable

   

Life in Years

   

Price

   

Value

 
                                                                 

$3.04

    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. 

 
    As of March 31, 2020, there was $1.3 million in unrecognized compensation expense related to share options.

 

The Company uses the Black-Scholes option-pricing model or other quantitative models to calculate the fair value of option awards.

 

Restricted Share Units

 

  The following table summarizes RSU activity for the three months ended March 31, 2020:

 
   

Three Months Ended

 
   

March 31, 2020

 
   

Restricted Share Units

   

Weighted Average Grant Date Fair Value

 
                 

Balance, beginning of year

    387,006     $ 3.97  

Granted

    198,682       2.99  

Vested

    (44,179 )     3.80  
Forfeited     (3,894 )     4.43  

Balance, end of period

    537,615     $ 3.62  

 

 

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. 

 

 As of March 31, 2020, there was $1.1 million of unrecognized compensation expense related to RSUs expected to be recognized over a weighted average period of 1.42 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.

 

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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 months ended March 31, 2020 and 2019 are shown in the tables below: 

 

(In thousands, except per share data)

 

Three Months Ended March 31,

 
   

2020

   

2019

 

Numerator:

               

Net income (loss) attributable to JMP Group LLC

  $ (11,748 )   $ 5,069  
                 

Denominator:

               
Basic weighted average shares outstanding     19,532       21,288  
                 

Effect of potential dilutive securities:

               

Restricted share units

    -       141  
                 
Diluted weighted average shares outstanding     19,532       21,429  
                 

Net income (loss) per share

               

Basic

  $ (0.60 )   $ 0.24  

Diluted

  $ (0.60 )   $ 0.24  

 

Due to the net loss for three months ended 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. 

 

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14. Revenue from contracts with customers

 

The following tables represent the Company’s total revenues from contracts with customers, disaggregated by major business activity, for the three months ended March 31, 2020 and March 31, 2019, respectively.

 

(in thousands)

 

Three Months Ended March 31, 2020

 
   

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

  $ 8,556     $ -     $ -     $ -     $ -     $ -     $ 8,556  
Strategic advisory and private placements     6,069       -       -       -       -       -       6,069  
Total investment banking revenues     14,625       -       -       -       -       -       14,625  
Commissions     3,718       -       -       -       -       -       3,718  
Research payments     1,241       -       -       -       -       -       1,241  
Net trading losses     (772 )     -       -       -       -       -       (772 )
Total brokerage revenues     4,187       -       -       -       -       -       4,187  
Base management fees     -       1,727       -       1,727       -       (25 )     1,702  
Incentive management fees     -       275       (261 )     14       -       -       14  
Total asset management fees     -       2,002       (261 )     1,741       -       (25 )     1,716