JMP Group LLC
JMP Group Inc. (Form: 10-Q, Received: 07/31/2014 16:50:03)

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 June 30, 2014 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: 001-33448

 

 


  JMP Group Inc.

(Exact name of registrant as specified in its charter)

  


 

Delaware

 

20-1450327

(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)

 

Registrant’s telephone number: (415) 835-8900

 

 


 

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

 

             

Large accelerated filer

 

 

Accelerated filer

 

       

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

The number of shares of the Registrant’s common stock, par value $0.001 per share, outstanding as of July 29, 2014 was 21,690,397.  

 

 
 

 

 

TABLE OF CONTENTS

 

    Page

 

 

 

PART I.

FINANCIAL INFORMATION

 4
     

Item 1.

Financial Statements - JMP Group Inc.

 4
 

Consolidated Statements of Financial Condition – June 30, 2014 and December 31, 2013 (Unaudited)

 4
 

Consolidated Statements of Operations - For the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)

 6
 

Consolidated Statements of Comprehensive Income - For the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)

 7
 

Consolidated Statement of Changes in Equity - For the Six Months Ended June 30, 2014 (Unaudited)

 7
 

Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2014 and 2013 (Unaudited)

 8
 

Notes to Consolidated Financial Statements (Unaudited)

 10

Item 2.

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

 35

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 64

Item 4.

Controls and Procedures

 65
     

PART II.

OTHER INFORMATION

 65
     

Item 1.

Legal Proceedings

 65

Item 1A.

Risk Factors

 65

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 66

Item 3.

Defaults Upon Senior Securities

 66

Item 4.

Mine Safety Disclosures

 66

Item 5.

Other Information

 66

Item 6.

Exhibits

 66
     
SIGNATURES 67
     
EXHIBIT INDEX 68

 

 
- 2 -

 

 

  AVAILABLE INFORMATION

 

JMP Group Inc. 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"). You may read and copy any document JMP Group Inc. files with the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at http://www.sec.gov, from which interested persons can electronically access JMP Group Inc.’s SEC filings.

 

JMP Group Inc. 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 stockholders, 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 Inc. may use its website as a channel of distribution of material company information.

 

JMP Group Inc. also makes available, in the Investor Relations section of its website and will provide print copies to stockholders 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 of JMP Group Inc., are not intended to be part of this quarterly report and inclusions of our internet address in this Form 10-Q are inactive textual references only.

 

 
- 3 -

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

 

JMP Group Inc.

Consolidated Statements of Financial Condition

(Unaudited)

(Dollars in thousands, except per share data)

 

 

   

June 30, 2014

   

December 31, 2013

 
                 

Assets

               

Cash and cash equivalents

  $ 49,603     $ 65,906  

Restricted cash and deposits (includes cash on deposit with clearing broker of $335 and $150 at June 30, 2014 and December 31, 2013, respectively)

    97,156       68,029  

Receivable from clearing broker

    1,397       1,280  

Investment banking fees receivable, net of allowance for doubtful accounts of $75 and zero at June 30, 2014 and December 31, 2013, respectively

    12,100       13,161  

Marketable securities owned, at fair value

    36,842       29,295  

Incentive fee receivable

    11,833       7,910  

Other investments (includes $189,523 and $161,518 measured at fair value at June 30, 2014 and December 31, 2013, respectively)

    190,349       161,773  

Loans held for investment, net of allowance for loan losses

    1,553       825  

Loans collateralizing asset-backed securities issued, net of allowance for loan losses (1)

    815,671       727,270  

Interest receivable

    1,994       1,876  

Fixed assets, net

    1,969       2,092  

Deferred tax assets

    8,959       12,492  

Other assets

    19,682       30,022  

Total assets

  $ 1,249,108     $ 1,121,931  
                 

Liabilities and Equity

               

Liabilities:

               

Marketable securities sold, but not yet purchased, at fair value

  $ 24,669     $ 13,749  

Accrued compensation

    40,615       51,347  

Asset-backed securities issued

    710,104       716,423  

Interest payable

    3,426       2,767  

Note payable

    -       15,000  

Line of credit

    691       2,895  

CLO III warehouse credit facility

    97,510       -  

Bond payable

    94,300       46,000  

Deferred tax liability

    4,295       3,625  

Other liabilities

    31,837       32,885  

Total liabilities

    1,007,447       884,691  
                 

Commitments and Contingencies

               

JMP Group Inc. Stockholders' Equity

               

Common stock, $0.001 par value, 100,000,000 shares authorized; 22,780,052 shares issued at both June 30, 2014 and December 31, 2013; 21,690,397 and 21,819,446 shares outstanding at June 30, 2014 and December 31, 2013, respectively

    23       23  

Additional paid-in capital

    135,599       132,547  

Treasury stock, at cost, 1,089,655 and 960,606 shares at June 30, 2014 and December 31, 2013, respectively

    (6,925 )     (6,076 )

Retained earnings (Accumulated deficit)

    4,896       (109 )

Total JMP Group Inc. stockholders' equity

    133,593       126,385  

Nonredeemable Non-controlling Interest

    108,068       110,855  

Total equity

    241,661       237,240  

Total liabilities and equity

  $ 1,249,108     $ 1,121,931  

 

(1)

Includes loans which will be used to collateralize CLO III. Refer to Note 5 for further discussion.

 

See accompanying notes to consolidated financial statements.  

 

 
- 4 -

 

 

JMP Group Inc.

Consolidated Statements of Financial Condition - (Continued)

(Unaudited)

(Dollars in thousands, except per share data)

 

Assets and liabilities of consolidated variable interest entities ("VIEs") included in total assets and total liabilities above:

 

   

June 30, 2014

   

December 31, 2013

 
                 

Cash and cash equivalents

  $ 94     $ 211  

Restricted cash

    60,714       43,497  

Loans collateralizing asset-backed securities issued, net of allowance for loan losses

    703,353       726,774  

Interest receivable

    1,653       1,851  

Incentive fees receivable

    621       495  

Deferred tax assets

    2,239       1,935  

Other assets

    3,145       3,107  

Total assets of consolidated VIEs

  $ 771,819     $ 777,870  
                 

Accrued compensation

    250       405  

Asset-backed securities issued

    710,104       716,423  

Note payable (1)

    2,500       4,053  

Interest payable

    1,907       1,947  

Deferred tax liability

    1,482       1,647  

Other liabilities

    806       882  

Total liabilities of consolidated VIEs

  $ 717,049     $ 725,357  

 

 

(1)

June 30, 2014 and December 31, 2013 balances are inclusive of intercompany loan.

 

  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.

 

See accompanying notes to consolidated financial statements.

 

 
- 5 -

 

 

JMP Group Inc.

Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2014

   

2013

   

2014

   

2013

 
                                 

Revenues

                               

Investment banking

  $ 23,061     $ 21,057     $ 48,114     $ 33,164  

Brokerage

    6,474       6,980       13,130       12,174  

Asset management fees

    14,858       3,527       20,402       10,278  

Principal transactions

    9,688       2,292       5,995       4,209  

Gain (loss) on sale, payoff and mark-to-market of loans

    (551 )     336       (171 )     1,425  

Net dividend income

    262       55       497       47  

Other income

    150       26       372       314  

Non-interest revenues

    53,942       34,273       88,339       61,611  
                                 

Interest income

    9,212       7,711       17,800       15,869  

Interest expense

    (5,424 )     (10,105 )     (10,252 )     (21,404 )

Net interest income (expense)

    3,788       (2,394 )     7,548       (5,535 )
                                 

Provision for loan losses

    (212 )     (975 )     (709 )     (1,924 )
                                 

Total net revenues after provision for loan losses

    57,518       30,904       95,178       54,152  
                                 

Non-interest expenses

                               

Compensation and benefits

    37,979       24,776       69,355       44,381  

Administration

    1,760       4,005       3,482       5,336  

Brokerage, clearing and exchange fees

    818       1,025       1,743       1,912  

Travel and business development

    980       1,039       1,831       1,997  

Communications and technology

    942       832       1,890       1,685  

Occupancy

    851       808       1,676       1,612  

Professional fees

    1,269       812       2,076       1,836  

Depreciation

    227       238       454       464  

Other

    330       224       542       307  

Total non-interest expenses

    45,156       33,759       83,049       59,530  

Net income (loss) before income tax expense

    12,362       (2,855 )     12,129       (5,378 )

Income tax expense (benefit)

    2,450       (644 )     4,146       (1,456 )

Net income (loss)

    9,912       (2,211 )     7,983       (3,922 )

Less: Net income (loss) attributable to nonredeemable non-controlling interest

    6,717       (776 )     790       (768 )

Net income (loss) attributable to JMP Group Inc.

  $ 3,195     $ (1,435 )   $ 7,193       (3,154 )
                                 

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

                               

Basic

  $ 0.14     $ (0.06 )   $ 0.31     $ (0.14 )

Diluted

  $ 0.13     $ (0.06 )   $ 0.30     $ (0.14 )
                                 

Dividends declared per common share

  $ 0.050     $ 0.035     $ 0.095     $ 0.070  
                                 

Weighted average common shares outstanding:

                               

Basic

    21,712       22,199       21,766       22,402  

Diluted

    23,745       22,199       23,640       22,402  

  

See accompanying notes to consolidated financial statements.

 

 
- 6 -

 

 

  J MP Group Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)

 

 

    

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2014

   

2013

   

2014

   

2013

 
                                 

Net income (loss)

  $ 9,912     $ (2,211 )   $ 7,983     $ (3,922 )

Other comprehensive income

                               

Unrealized gain on cash flow hedge, net of tax

    -       14       -       28  

Comprehensive income (loss) attributable to JMP Group Inc.

    9,912       (2,197 )     7,983       (3,894 )

Less: Comprehensive (loss) income attributable to non-controlling interest

    6,717       (776 )     790       (768 )

Comprehensive income (loss) attributable to JMP Group Inc.

  $ 3,195     $ (1,421 )   $ 7,193     $ (3,126 )

 

 

 

 

 

 

 

 

 

 

JMP Group Inc.

Consolidated Statement of Changes in Equity

(Unaudited)

(In thousands)

 

   

JMP Group Inc. Stockholders' Equity

                 
                                   

Retained

   

Accumulated

                 
                           

Additional

   

Earnings

   

Other

   

Nonredeemable

         
   

Common Stock

   

Treasury

   

Paid-In

   

(Accumulated

   

Comprehensive

   

Non-controlling

    Total  
   

Shares

   

Amount

   

Stock

   

Capital

   

Deficit)

   

Loss

   

Interest

   

Equity

 

Balance, December 31, 2013

    22,780     $ 23     $ (6,076 )   $ 132,547     $ (109 )   $ -     $ 110,855     $ 237,240  

Net income

    -       -       -       -       7,193       -       790       7,983  

Additonal paid-in capital - stock-based compensation

    -       -       -       3,814       -       -       -       3,814  

Dividends and dividend equivalents declared on common stock and restricted stock units

    -       -       -       -       (2,188 )     -       -       (2,188 )

Purchases of shares of common stock for treasury

    -       -       (1,366 )     -       -       -       -       (1,366 )

Reissuance of shares of common stock from treasury

    -       -       517       82       -       -       -       599  

Purchase of subsidiary shares from non-controlling interest holders

    -       -       -       (844 )     -       -       (5,156 )     (6,000 )

Distributions to non-controlling interest holders

    -       -       -       -       -       -       (2,851 )     (2,851 )

Capital contributions from non-controlling interest holders

    -       -       -       -       -       -       4,430       4,430  

Balance, June 30, 2014

    22,780     $ 23     $ (6,925 )   $ 135,599     $ 4,896     $ -     $ 108,068     $ 241,661  

 

See accompanying notes to consolidated financial statements.

 

 
- 7 -

 

 

JMP Group Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

               

   

Six Months Ended June 30,

 
   

2014

   

2013

 

Cash flows from operating activities:

               

Net income (loss)

  $ 7,983     $ (3,922 )

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

               

Provision for doubtful accounts

    75       2  

Provision for loan losses

    709       1,924  

Accretion of deferred loan fees

    (563 )     (1,139 )

Amortization of liquidity discount, net

    (58 )     14,978  

Amortization of debt issuance costs

    190       31  

Amortization of original issue discount, related to CLO II

    452       143  

Interest paid in kind

    (67 )     (284 )

Loss (gain) on sale and payoff of loans

    171       (1,425 )

Change in other investments:

               

Fair value

    (4,507 )     (3,159 )

Incentive fees reinvested in general partnership interests

    (9,809 )     (3,730 )

Change in fair value of small business loans

    -       (90 )

Realized gain on other investments

    (691 )     (175 )

Depreciation and amortization of fixed assets

    454       464  

Stock-based compensation expense

    4,461       2,551  

Deferred income taxes

    4,204       (2,454 )

Net change in operating assets and liabilities:

               

(Increase) decrease in interest receivable

    (51 )     77  

(Decrease) increase in receivables

    275       (6,647 )

Increase in marketable securities

    (7,547 )     (3,368 )

(Increase) decrease in restricted cash (excluding restricted cash reserved for lending activities), deposits and other assets

    (17,851 )     17,693  

Increase in marketable securities sold, but not yet purchased

    10,920       309  

Increase in interest payable

    659       1,975  

(Decrease) increase in accrued compensation and other liabilities

    (11,780 )     1,772  

Net cash (used in) provided by operating activities

    (22,371 )     15,526  
                 

Cash flows from investing activities:

               

Purchases of fixed assets

    (331 )     (213 )

Investment in subsidiary

    -       (17,325 )

Purchases of other investments

    (26,304 )     (67,158 )

Sales of other investments

    24,357       5,841  

Funding of loans collateralizing asset-backed securities issued

    (282,311 )     (346,470 )

Funding of small business loans

    -       (1,451 )

Funding of loans held for investment

    (728 )     -  

Sale and payoff of loans collateralizing asset-backed securities issued

    155,836       92,374  

Principal receipts on loans collateralizing asset-backed securities issued

    37,815       19,309  

Net change in restricted cash reserved for lending activities

    (14,371 )     235,713  

Cash associated with consolidation / deconsolidation of subsidiaries

    -       (13,343 )

Net cash used in investing activities

    (106,037 )     (92,723 )

 

See accompanying notes to consolidated financial statements.  

 

 
- 8 -

 

 

JMP Group Inc.

Consolidated Statements of Cash Flows - (Continued)

(Unaudited)

(In thousands)

   

 

   

Six Months Ended June 30,

 
   

2014

   

2013

 

Cash flows from financing activities:

               

Proceeds from issuance of note payable

    -       15,000  

Proceeds from line of credit

    691       -  

Proceeds from CLO III credit warehouse

    97,510       -  

Proceeds from bond issuance

    48,300       46,000  

Payments of debt issuance costs

    (1,707 )     (1,694 )

Repayment of note payable

    (15,000 )     (6,118 )

Repayment of line of credit

    (2,895 )     (28,227 )

Repayment of asset-backed securities issued

    (6,771 )     -  

Dividends and dividend equivalents paid on common stock and RSUs

    (2,188 )     (1,620 )

Purchases of shares of common stock for treasury

    (1,366 )     (3,129 )

Capital contributions of redeemable non-controlling interest holders

    -       134  

Capital contributions of nonredeemable non-controlling interest holders

    4,430       46,483  

Distributions to non-controlling interest shareholders

    (2,851 )     (3,377 )

Purchase of subsidiary shares from non-controlling interest holders

    (6,000 )     -  

Cash settlement of stock-based compensation

    (48 )     -  

Net cash provided by financing activities

    112,105       63,452  

Net decrease in cash and cash equivalents

    (16,303 )     (13,745 )

Cash and cash equivalents, beginning of period

    65,906       67,075  

Cash and cash equivalents, end of period

  $ 49,603     $ 53,330  
                 

Supplemental disclosures of cash flow information:

               

Cash paid during the period for interest

  $ 9,214     $ 3,671  

Cash paid during the period for taxes

  $ 9,439     $ 6,957  
                 

Non-cash investing and financing activities:

               

Reissuance of shares of common stock from treasury related to vesting of restricted stock units and exercises of stock options

  $ 517     $ 163  

 

See accompanying notes to consolidated financial statements.  

 

 
- 9 -

 

 

JMP GROUP INC.

Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

 

1. Organization and Description of Business

 

JMP Group Inc., together with its subsidiaries (collectively, the “Company”), is an independent investment banking and asset management firm headquartered in San Francisco, California. The Company conducts its brokerage business through JMP Securities LLC (“JMP Securities”), its asset management business through Harvest Capital Strategies LLC (“HCS”) and HCAP Advisors LLC (“HCAP Advisors“), its corporate credit business through JMP Credit Corporation (“JMP Credit”) and JMP Credit Advisors LLC (“JMPCA”), and certain principal investments through JMP Capital LLC (“JMP Capital”). 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, 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. From September 2011 through May 2013, the Company also conducted corporate credit business through partially owned Harvest Capital Credit LLC (“HCC LLC”). On December 18, 2012, HCAP Advisors was formed as a Delaware Limited Liability Company. Effective May 1, 2013, HCAP Advisors provides investment advisory services to Harvest Capital Credit Corporation (“HCC”). Through JMPCA, the Company manages Cratos CLO I Holdings, LLC (“CLO I”), JMPCA CLO II Ltd (“CLO II”) and JMPCA CLO III Ltd (“CLO III”).

 

2. Summary of Significant Accounting Policies

 

Recent Transactions

 

In January 2014, the Company contributed an additional $15.0 million investment to CLO III. With this contribution, the Company has met its $25.0 million commitment. The $25.0 million equity financing was used to purchase loans, prior to leveraging the existing CLO III credit warehouse held at BNP Paribas. As of June 30, 2014, $97.5 million was used from the $100.0 million credit facility to fund additional CLO III loans.

 

In the first quarter of 2014, the Company repurchased $6.0 million of the unsecured subordinated notes from CLO II non-controlling interests, increasing the Company’s ownership from 72.8% to 98.0%. The effects of changes on the Company’s equity from net income attributable to JMP Group Inc. and the purchase of CLO II non-controlling interest are noted below.

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2014

   

2013

   

2014

   

2013

 
                                 

Net income (loss) attributable to JMP Group Inc.

  $ 3,195     $ (1,435 )   $ 7,193     $ (3,154 )

Transfers from non-controlling interest

                               

Decrease in JMP Group Inc. paid-in capital for purchase of CLO II interest

    -       -       (844 )     -  

Net transfers from non-controlling interest

    -       -       (844 )     -  

Change from net income (loss) attributable to JMP Group Inc and transfers from non-controlling interest

  $ 3,195     $ (1,435 )   $ 6,349     $ (3,154 )

 

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 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 2013 10-K. These consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for the fair statement of the results for the interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year.

 

The consolidated accounts of the Company include the wholly-owned subsidiaries, JMP Securities, HCS, JMP Capital, JMP Credit, JMPCA, CLO III (effective December 11, 2013), and the partially-owned subsidiaries Harvest Growth Capital LLC (“HGC”), Harvest Growth Capital II LLC (“HGC II”), HCC LLC (from August 18, 2011 through May 2, 2013), CLO I, CLO II (effective April 30, 2013), and HCAP Advisors (effective May 1, 2013). All material intercompany accounts and transactions have been eliminated in consolidation. Non-controlling interest on the Consolidated Statements of Financial Condition at June 30, 2014 and December 31, 2013 relate to the interest of third parties in the partly-owned subsidiaries.

 

See Note 2 - Summary of Significant Accounting Policies in the Company's 2013 10-K for the Company's significant accounting policies.

 

 
- 10 -

 

 

3. Recent Accounting Pronouncements

 

ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists was issued to provide guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity settles at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The adoption of ASU 2013-11 on January 1, 2014 did not have a material impact on the Company’s financial statement disclosures.

 

In May 2014, ASU 2014-9 , Revenue from Contracts with Customers was issued to provide a more robust framework for addressing revenue issues. The provisions of this standard are effective for annual reporting periods beginning after December 15, 2016, and do not allow early adoption. The adoption of ASC 2014-9 may have an impact on the Company’s financial statements; however, the extent is not yet determined.

 

4. Fair Value Measurements

 

The following tables provide fair value information related to the Company’s financial instruments at June 30, 2014 and December 31, 2013:

 

   

At June 30, 2014

 

(In thousands)

 

Carrying Value

   

Fair Value

 
           

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets:

                                       

Cash and cash equivalents

  $ 49,603     $ 49,603     $ -     $ -     $ 49,603  

Restricted cash and deposits

    97,156       97,156       -       -       97,156  

Marketable securities owned

    36,842       36,842       -       -       36,842  

Other investments

    190,349       5,062       69,054       116,007       190,123  

Loans held for investment, net of allowance for loan losses

    1,553       -       -       1,374       1,374  

Loans collateralizing asset-backed securities issued, net of allowance for loan losses

    815,671       -       825,350       -       825,350  

Long term receivable

    1,013       -       -       1,179       1,179  

Total assets:

  $ 1,192,187     $ 188,663     $ 894,404     $ 118,560     $ 1,201,627  
                                         

Liabilities:

                                       

Marketable securities sold, but not yet purchased

  $ 24,669     $ 24,669     $ -     $ -     $ 24,669  

Asset-backed securities issued

    710,104       -       705,607       -       705,607  

Line of credit

    691       -       691       -       691  

Bond payable

    94,300       -       95,611       -       95,611  

CLO III warehouse credit facility

    97,510       -       97,510       -       97,510  

Total liabilities:

  $ 927,274     $ 24,669     $ 899,419     $ -     $ 924,088  

 

 
- 11 -

 

 

   

At December 31, 2013

 

(In thousands)

 

Carrying Value

   

Fair Value

 
           

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets:

                                       

Cash and cash equivalents

  $ 65,906     $ 65,906     $ -     $ -     $ 65,906  

Restricted cash and deposits

    68,029       68,029       -       -       68,029  

Marketable securities owned

    29,295       29,295       -       -       29,295  

Other investments

    161,773       57       49,389       112,072       161,518  

Loans held for investment, net of allowance for loan losses

    825       -       -       693       693  

Loans collateralizing asset-backed securities issued, net of allowance for loan losses

    727,270       -       737,327       -       737,327  

Long term receivable

    1,152       -       -       1,364       1,364  

Total assets:

  $ 1,054,250     $ 163,287     $ 786,716     $ 114,129     $ 1,064,132  
                                         

Liabilities:

                                       

Marketable securities sold, but not yet purchased

  $ 13,749     $ 13,749     $ -     $ -     $ 13,749  

Asset-backed securities issued

    716,423       -       710,961       -       710,961  

Note payable

    15,000       -       15,000       -       15,000  

Line of credit

    2,895       -       2,895       -       2,895  

Bond payable

    46,000       -       46,552       -       46,552  

Total liabilities:

  $ 794,067     $ 13,749     $ 775,408     $ -     $ 789,157  

 

 

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 June 30, 2014 and December 31, 2013:  

 

(In thousands)

 

June 30, 2014

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Marketable securities owned

  $ 36,842     $ -     $ -     $ 36,842  

Other investments:

                               

Investments in hedge funds managed by HCS

    -       68,820       -       68,820  

Investments in funds of funds managed by HCS

    -       -       147       147  

Total investment in funds managed by HCS

    -       68,820       147       68,967  

Investments in private equity/ real estate funds

    -       -       6,909       6,909  

Warrants and other held at JMPS and JMPG LLC

    -       -       916       916  

Equity securities in HGC, HGC II and JMP Capital

    5,062       234       101,001       106,297  

Forward purchase contract and swaption

    -       -       6,434       6,434  

Total other investments

    5,062       69,054       115,407       189,523  

Total assets:

  $ 41,904     $ 69,054     $ 115,407     $ 226,365  
                                 

Marketable securities sold, but not yet purchased

    24,669       -       -       24,669  
                                 

Total liabilities:

  $ 24,669     $ -     $ -     $ 24,669  

 

 
- 12 -

 

 

(In thousands)

 

December 31, 2013

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Marketable securities owned

  $ 29,295     $ -     $ -     $ 29,295  

Other investments:

                               

Investments in hedge funds managed by HCS

    -       44,647       -       44,647  

Investments in funds of funds managed by HCS

    -       -       139       139  

Total investment in funds managed by HCS

    -       44,647       139       44,786  

Investments in private equity/ real estate funds

    -       -       5,967       5,967  

Warrants and other held at JMPS and JMPG LLC

    -       -       1,121       1,121  

Equity securities in HGC, HGC II and JMP Capital

    57       4,742       97,981       102,780  

Forward purchase contract

    -       -       6,864       6,864  

Total other investments

    57       49,389       112,072       161,518  

Total assets:

  $ 29,352     $ 49,389     $ 112,072     $ 190,813  
                                 

Marketable securities sold, but not yet purchased

    13,749       -       -       13,749  
                                 

Total liabilities:

  $ 13,749     $ -     $ -     $ 13,749  

 

The Company holds a limited partner investment in a private equity fund. This fund aims to achieve medium to long-term capital appreciation by investing in a diversified portfolio of technology companies that leverage the growth of Greater China. The Company also holds an investment in a real estate fund, which aims to generate revenue stream from investments in real estate joint ventures. The Company recognizes this investment using the fair value option. The primary reason for electing the fair value option was to measure gains on the same basis as the Company’s other equity securities, which are stated at fair value.

 

The Company’s Level 2 assets held in other investments consist of small business loans (through May 2, 2013), investments in hedge funds managed by HCS, and equity securities in HGC, HGC II, and JMP Capital. The fair value of the Level 2 small business loans is calculated using the average market bid and ask quotation obtained from a loan pricing service. The fair value of the investment in hedge funds is calculated using the net asset value. 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 Level 2 equity securities in HGC, HGC II, and JMP Capital reflect investments in public securities, where the Company is subject to a lockup period. The fair value of the Level 2 equity securities in HGC, HGC II and JMP Capital is calculated by applying a discount rate to the quoted market prices of the portfolio securities due to lack of marketability.

 

The tables below provide a reconciliation of the beginning and ending balances for the assets held at fair value using significant unobservable inputs (Level 3) for the three months ended June 30, 2014 and 2013.

       

(In thousands)

 

Balance as of March 31, 2014

   

Purchases

   

Sales

   

Settlements

   

Total gains (losses) - realized and unrealized included in earnings (1)

   

Transfers in/(out) of Level 3

   

Balance as of June 30, 2014

   

Unrealized gains/(losses) included in earnings related to assets still held at reporting date

 

Investments in funds of funds managed by HCS

  $ 153     $ -     $ -     $ -     $ (6 )   $ -     $ 147     $ (6 )

Limited partner investment in private equity fund

    6,178       1,080       -       (262 )     (87 )     -       6,909       (87 )

Warrants and other held at JMPS

    741       -       -       -       175       -       916       -  

Equity securities held by HGC, HGC II and JMP Capital

    94,260       231       (2,204 )     -       8,935       (221 )     101,001       8,950  

Forward Purchase Contract and Swaption

    7,068       460       -       -       (1,094 )     -       6,434       (1,094 )

Total Level 3 assets

  $ 108,400     $ 1,771     $ (2,204 )   $ (262 )   $ 7,923     $ (221 )   $ 115,407     $ 7,763  

 

(1) No Level 3 asset gains (losses) are included in other comprehensive income. All realized and unrealized gains (losses) related to Level 3 assets are included in earnings.

 

 
- 13 -

 

(In thousands)

 

Balance as of March 31, 2013

   

Purchases

   

Sales

   

Settlements

   

Total gains (losses) - realized and unrealized included in earnings (1)

   

Transfers in/(out) of Level 3

   

Balance as of June 30, 2013

   

Unrealized gains/(losses) included in earnings related to assets still held at reporting date

 

Investments in funds of funds managed by HCS

  $ 117     $ -     $ -     $ -     $ 11     $ -     $ 128     $ 11  

Limited partner investment in private equity fund

    2,558       -       -       -       133       -       2,691       133  

Warrants and other held at JMPS

    296       42       -       -       445       -       783       445  

Warrants and equity held at HCC

    3,102       -       -       -       -       (3,102 )     -       -  

Small business loans

    36,823       382       -       -       -       (37,205 )     -       -  

Equity securities held by HGC, HGC II and JMP Capital

    48,478       28,256       -       -       1,007       -       77,741       1,007  

Forward Purchase Contract

    5,000       -       -       -       -       -       5,000       -  

Total Level 3 assets

  $ 96,374     $ 28,680     $ -     $ -     $ 1,596     $ (40,307 )   $ 86,343     $ 1,596  

 

(1) No Level 3 asset gains (losses) are included in other comprehensive income. All realized and unrealized gains (losses) related to Level 3 assets are included in earnings.

 

The tables below provide a reconciliation of the beginning and ending balances for the assets held at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2014 and 2013.

        

(In thousands)

 

Balance as of December 31, 2013

   

Purchases

   

Sales

   

Settlements

   

Total gains (losses) - realized and unrealized included in earnings (1)

   

Transfers in/(out) of Level 3

   

Balance as of June 30, 2014

   

Unrealized gains/(losses) included in earnings related to assets still held at reporting date

 

Investments in funds of funds managed by HCS

  $ 139     $ -     $ -     $ -     $ 8