jmpllc20200630_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 September 30, 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(s)  

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 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 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 November 10, 2020: 19,665,947.

 



 

 
 

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 (Unaudited)

4

 

Consolidated Statements of Operations (Unaudited)

5

  Consolidated Statements of Comprehensive Income (Loss) (Unaudited) 6
 

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

7

 

Consolidated Statements of Cash Flows (Unaudited)

8

 

Notes to Consolidated Financial Statements (Unaudited)

10

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

57

Item 4.

Controls and Procedures

57

     

PART II.

OTHER INFORMATION

58

     

Item 1.

Legal Proceedings

58

Item 1A.

Risk Factors

58

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

59

   

EXHIBIT INDEX

60

   

SIGNATURES

61

 

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)

 

   

September 30, 2020

   

December 31, 2019 (1)

 

Assets

               
Cash and cash equivalents   $ 56,678     $ 49,630  
Restricted cash     1,287       1,287  
Investment banking fees receivable     13,146       9,066  
Marketable securities owned at fair value (includes $5,975 and $0 pledged as collateral at September 30, 2020 and December 31, 2019, respectively)     55,497       73,101  
Other investments (includes $14,374 and $14,206 at fair value at September 30, 2020 and December 31, 2019, respectively)     24,022       35,309  
Loans held for investment, net of allowance for loan losses     1,109       1,210  
Interest receivable     348       502  
Fixed assets, net     3,381       4,267  
Operating lease right-of-use asset     17,112       19,632  
Other assets     40,077       36,253  

Total assets

  $ 212,657     $ 230,257  
                 

Liabilities and Equity

               

Liabilities:

               
Marketable securities sold, but not yet purchased, at fair value   $ -     $ 3,855  
Accrued compensation     25,550       30,253  
Interest payable     707       520  
Note payable     10,610       6,812  
Bond payable, net of debt issuance costs of $3,049 and $3,416 at September 30, 2020 and December 31, 2019, respectively     80,816       82,584  
Operating lease liability     22,239       25,394  
Other liabilities     19,485       19,478  
Total liabilities     159,407       168,896  
                 

Commitments and Contingencies (Note 14)

               

JMP Group LLC Shareholders' Equity

               
Common shares, $0.001 par value, 100,000,000 shares authorized at September 30, 2020 and December 31, 2019; 22,797,092 shares issued at September 30, 2020 and December 31, 2019; 19,635,544 and 19,509,349 shares outstanding at September 30, 2020 and December 31, 2019, respectively     23       23  
Additional paid-in capital     134,736       133,894  
Treasury shares at cost, 3,161,548 and 3,287,743 shares at September 30, 2020 and December 31, 2019, respectively     (14,269 )     (14,872 )
Accumulated other comprehensive loss     (328 )     (4,769 )
Accumulated deficit     (66,294 )     (52,588 )
Total JMP Group LLC shareholders' equity     53,868       61,688  
Non-controlling interest     (618 )     (327 )
Total equity     53,250       61,361  

Total liabilities and equity

  $ 212,657     $ 230,257  

 

(1)

The statement of financial condition 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 September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Revenues

                               

Investment banking

  $ 20,874     $ 15,228     $ 57,094     $ 44,843  
Brokerage     4,176       3,968       14,008       13,160  
Asset management fees     2,911       1,628       6,339       5,685  
Principal transactions     (2,737 )     (340 )     (20,337 )     6,371  
Loss on sale, payoff and mark-to-market of loans     -       -       -       (38 )
Net dividend income     4       279       241       868  
Other income     841       759       2,688       1,517  
Non-interest revenues     26,069       21,522       60,033       72,406  
                                 
Interest income     2,287       2,328       6,391       19,391  
Interest expense     (1,732 )     (1,930 )     (5,237 )     (14,642 )
Net interest income     555       398       1,154       4,749  
                                 
Gain (loss) on repurchase, reissuance or early retirement of debt     -       (458 )     697       (458 )
Provision for loan losses     -       (438 )     -       (438 )
Total net revenues     26,624       21,024       61,884       76,259  
                                 

Non-interest expenses

                               
Compensation and benefits     23,502       17,506       62,101       54,673  
Administration     1,408       2,301       4,697       6,978  
Brokerage, clearing and exchange fees     620       617       1,901       2,051  
Travel and business development     65       1,263       1,041       3,631  
Managed deal expenses     990       685       2,528       2,552  
Communications and technology     1,072       1,061       3,286       3,241  
Occupancy     1,194       1,196       3,587       4,028  
Professional fees     776       1,236       2,397       3,513  
Depreciation     278       307       1,223       915  
Other     (8 )     200       201       700  
Total non-interest expenses     29,897       26,372       82,962       82,282  
Net income (loss) before income taxes     (3,273 )     (5,348 )     (21,078 )     (6,023 )
Income tax benefit     (128 )     (1,220 )     (7,191 )     (5,839 )
Net income (loss)     (3,145 )     (4,128 )     (13,887 )     (184 )
Less: Net income (loss) attributable to non-controlling interest     (63 )     (67 )     (181 )     (80 )

Net income (loss) attributable to JMP Group LLC

  $ (3,082 )   $ (4,061 )   $ (13,706 )   $ (104 )
                                 

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

                               

Basic

  $ (0.16 )   $ (0.21 )   $ (0.70 )   $ (0.01 )

Diluted

  $ (0.16 )   $ (0.21 )   $ (0.70 )   $ (0.01 )
                                 

Weighted average common shares outstanding:

                               
Basic     19,628       19,324       19,581       20,454  
Diluted     19,628       19,324       19,581       20,454  

 

See accompanying notes to consolidated financial statements.

 

5

 

 

 

JMP Group LLC

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net income (loss)

  $ (3,145 )   $ (4,128 )   $ (13,887 )   $ (184 )

Other comprehensive income (loss):

                               
Net unrealized gains (losses) on available-for-sale securities during the period, net of income tax provision (benefit) of ($675), $209, ($3,010) and ($695)     (1,844 )   $ 709       (8,197 )   $ (1,860 )
Less: reclassification adjustments for net (gains) losses on available-for-sale securities, net of income tax provision (benefit) of $738, $0, $4,643 and $0     2,009       -       12,638       -  
Net other comprehensive income (loss), net of income tax provision (benefit) of $63, $209, $1,633 and ($695)     165       709       4,441       (1,860 )
Comprehensive income (loss)     (2,980 )     (3,419 )     (9,446 )     (2,044 )
Less: comprehensive income (loss) attributable to non-controlling interest     (63 )     (67 )     (181 )     (80 )

Comprehensive income (loss) attributable to JMP Group LLC

  $ (2,917 )   $ (3,352 )   $ (9,265 )   $ (1,964 )

 

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 income (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  
Net income (loss)     -       -       -       -       1,124       -       (26 )     1,098  
Additional paid-in capital - share-based compensation     -       -       -       209       -       -       -       209  
Purchases of shares of common shares for treasury     -       -       231       -       -       -       -       231  
Distribution to non-controlling interest holders     -       -       -       -       -       -       (112 )     (112 )
Other comprehensive income     -       -       -       -       -       2,995       -       2,995  
Balance, June 30, 2020     22,797       23       (14,467 )     134,337       (63,212 )     (493 )     (555 )     55,633  
Net income (loss)     -       -       -       -       (3,082 )     -       (63 )     (3,145 )
Additional paid-in capital - share-based compensation     -       -       -       399       -       -       -       399  
Purchases of shares of common shares for treasury     -       -       198       -       -       -       -       198  
Common Shares Issued     -       -       -       -       -       -       -       -  
Distribution to non-controlling interest holders     -       -       -       -       -       -       -       -  
Other comprehensive income     -       -       -       -       -       165       -       165  

Balance, September 30, 2020

    22,797     $ 23     $ (14,269 )   $ 134,736     $ (66,294 )   $ (328 )   $ (618 )   $ 53,250  

 

   

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  
Net income (loss)     -       -       -       -       (1,112 )     -       (83 )     (1,195 )
Additional paid-in capital - share-based compensation     -       -       -       177       -       -       -       177  
Distributions and distribution equivalents declared on common shares and restricted share units     -       -       -       -       (843 )     -       -       (843 )
Purchases of shares of common shares for treasury     -       -       (8,044 )     -       -       -       -       (8,044 )
Reissuance of shares of common shares from treasury     -       -       496       (79 )     -       -       -       417  
Other comprehensive loss     -       -       -       -       -       (1,787 )     -       (1,787 )
Balance, June 30, 2019     22,780       23       (15,876 )     134,332       (40,469 )     (2,569 )     (269 )     75,172  
Net income (loss)     -       -       -       -       (4,061 )     -       (67 )     (4,128 )
Additional paid-in capital - share-based compensation     -       -       -       444       -       -       -       444  
Distributions and distribution equivalents declared on common shares and restricted share units     -       -       -       -       (773 )     -       -       (773 )
Purchases of shares of common shares for treasury     -       -       34       -       -       -       -       34  
Reissuance of shares of common shares from treasury     -       -       (27 )     (11 )     -       -       -       (38 )
Common shares issued     17       -       -       93       -       -       -       93  
Other comprehensive loss     -       -       -       -       -       709       -       709  

Balance, September 30, 2019

    22,797     $ 23     $ (15,869 )   $ 134,858     $ (45,303 )   $ (1,860 )   $ (336 )   $ 71,513  

 

See accompanying notes to consolidated financial statements.

 

7

 
 

 

JMP Group LLC

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

   

Nine Months Ended September 30,

 
   

2020

   

2019

 

Cash flows from operating activities:

               
Net (loss) income   $ (13,887 )   $ (184 )

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

               
(Gain) loss on repurchase, reissuance or early retirement of debt     (697 )     458  
Provision for loan losses     -       438  
Loss on sale and payoff of loans and mark-to-market of loans     -       38  

Change in other investments:

               
(Income) loss from investments in equity method investees     (888 )     (1,305 )
Gain on other investments     (1,226 )     (1,254 )
Depreciation and amortization     858       1,316  
Share-based compensation expense     1,401       1,590  
Gain on deconsolidation     -       (3,520 )
Distributions of investment income from equity method investments     1,044       492  
Other, net     (194 )     293  

Net change in operating assets and liabilities:

               
Decrease (increase) in interest receivable     154       (4,899 )
Decrease (increase) in receivables     (3,879 )     (950 )
Decrease (increase) in marketable securities     23,684       9,643  
Decrease (increase) in other assets     (5,870 )     (10,181 )
Increase (Decrease) in marketable securities sold, but not yet purchased     (3,855 )     (1,789 )
Increase (decrease) in interest payable     187       (4,034 )
Increase (decrease) in accrued compensation     (4,703 )     (23,475 )
Increase (decrease) in other liabilities     520       6,895  
Net cash provided by (used in) operating activities     (7,351 )     (30,428 )
                 

Cash flows from investing activities:

               
Purchases of fixed assets     (340 )     (1,341 )
Purchases of other investments     (1,814 )     (12,538 )
Sales or distributions from other investments     14,170       10,655  
Funding of loans collateralizing asset-backed securities issued     -       (35,153 )
Funding of loans held for investment     -       (25,679 )
Sale, payoff and principal receipts of loans collateralizing asset-backed securities issued     -       23,806  
Sale, payoff and principal receipts on loans held for investment     121       7,211  
Net decrease in cash and restricted cash due to deconsolidation of subsidiaries     -       (27,771 )
Net cash provided by (used in) investing activities     12,137       (60,810 )

 

See accompanying notes to consolidated financial statements.

 

8

 

 

JMP Group LLC

Consolidated Statements of Cash Flows - (Continued)

(Unaudited)

(In thousands)

 

   

Nine Months Ended September 30,

 
   

2020

   

2019

 

Cash flows from financing activities:

               
Proceeds from drawdowns on line of credit and other borrowings     3,798       16,583  
Proceeds from drawdowns on CLO warehouse facilities     -       7,750  
Proceeds from bond issuance     -       36,000  
Payment of debt issuance costs     -       (1,887 )
Repayment of line of credit     -       (1,600 )
Repayment of asset-backed securities issued     -       (801 )
Repayment on bonds payable     (1,361 )     (35,977 )
Repurchase of bonds payable             -  
Distributions and distribution equivalents paid on common shares and RSUs     -       (2,686 )
Purchase of common shares for treasury     -       (8,614 )
Distributions to non-controlling interest shareholders     (112 )     (913 )
Employee taxes paid on shares withheld for tax-withholding purposes     (63 )     (184 )
Net cash provided by provided by (used in) financing activities     2,262       7,671  
                 
Cash, Cash Equivalents and Restricted Cash                
Net (decrease) increase in cash, cash equivalents, and restricted cash     7,048       (83,567 )
Cash, cash equivalents and restricted cash, beginning of period     50,917       132,808  
Cash, cash equivalents and restricted cash at end of period   $ 57,965     $ 49,241  
Less: Restricted cash , end of period     1,287       1,221  
Cash and cash equivalents, end of period   $ 56,678     $ 48,020  
                 

Supplemental disclosures of cash flow information:

               
Cash paid (received) during the period for interest   $ 5,238     $ 18,676  
Cash paid (received) during the period for taxes, net of refunds   $ (263 )   $ 2,060  
                 

Non-cash investing and financing activities:

               
Reissuance of common shares from treasury related to vesting of restricted share units   $ 666     $ 954  
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 non-cash assets derecognized on deconsolidation of subsidiaries     -       1,226,848  
Carrying value of non-cash 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

September 30, 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.

 

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”). Certain disclosures required by GAAP and normally included in an annual report on Form 10-K have been condensed or omitted from this report; however, except as disclosed herein, there has been no material change in the information disclosed in the notes to consolidated financial statements included in 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 the Company is 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 September 30, 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 nine months ended September 30, 2020, there were no significant changes made to the Company’s significant accounting policies. See Note 3, Recent Accounting Pronouncements, for a summary of recently adopted or yet to be adopted accounting pronouncements, and their impact on the Company.

 

Deconsolidation

 

During the first three months of 2019, multiple events and transactions took place which resulted in the Company deconsolidating the following variable interest entities ("VIEs"): JMPCA, JMP Credit Advisors CLO III(R) Ltd. (“CLO III”), JMP Credit Advisors CLO IV Ltd (“CLO IV”), JMP Credit Advisors CLO V Ltd (“CLO V”), and JMP Credit Advisors Long-Term Warehouse Ltd (“CLO VI”) (CLO III, CLO IV, CLO V and CLO VI are collectively the “CLOs”). These events and transactions are hereafter referred to as the "Deconsolidation". The Company continues to hold approximately 47% of the subordinated notes of CLO III and 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. Refer to the Annual Report for more information on the Deconsolidation.

 

 

 

3. Recent Accounting Pronouncements

 

 Accounting Standards to be adopted in Future Periods

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL), with subsequent amendments to clarify the guidance, provide transitional relief provisions and minor updates to the original ASU. ASU 206-13 replaces the existing 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. This ASU is required to be adopted using a modified retrospective approach with a cumulative-effect adjustment to beginning retained earnings, as of the beginning of the first reporting period the guidance is effective for. As a result of one of the amendments to ASU 2016-13, 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, with early adoption permitted. The Company does not plan to early adopt this standard, but continues to work through implementation. While the Company cannot reasonably estimate the impact of adopting this standard, it expects the impact will be influenced by the composition, characteristics and quality of the Company's securities portfolios, as well as the general economic conditions and forecasts as of the adoption date.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, 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 and its impact on the Company’s disclosures.

 

Recently Adopted Accounting Guidance

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project. The Company adopted ASU 2018-13 effective January 1, 2020. The adoption did not materially impact the Company’s consolidated financial statements or its disclosures.

 

11

 

 

 

4. Fair Value Measurements

 

The following tables provide fair value information related to the Company’s financial instruments at September 30, 2020 and December 31, 2019:

 

   

September 30, 2020

 

(In thousands)

 

Carrying Value

   

Fair Value

 
           

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets:

                                       
Cash and cash equivalents   $ 56,678     $ 56,678     $ -     $ -     $ 56,678  
Restricted cash     1,287       1,287       -       -       1,287  
Marketable securities owned     55,497       4,845       -       50,652       55,497  
Equity Investments     3,777       -       -       3,777       3,777  
Investments in private equity, real estate and credit funds, measured at net asset value (1)     10,597       -       -       -       -  
Loans held for sale     2,412       -       -       2,412       2,412  
Loans held for investment, net of allowance for loan losses     1,109       -       -       1,109       1,109  

Total assets:

  $ 131,357     $ 62,810     $ -     $ 57,950     $ 120,760  
                                         

Liabilities:

                                       
Notes payable   $ 10,610       -     $ 5,983     $ 4,627     $ 10,610  
Bond payable     80,816       -       75,070       -       75,070  
Total liabilities:   $ 91,426     $ -     $ 81,053     $ 4,627     $ 85,680  

 

   

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

    1,287       1,287       -       -       1,287  

Marketable securities owned

    73,101       15,245       -       57,856       73,101  
Equity Investments     3,956       -       -       3,956       3,956.00  

Investments in private equity, real estate and credit funds, 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 the notes payable identified as a Level 2 liability to approximate its carrying value. This was determined as the debt has a variable interest rate tied to LIBOR and therefore reflects market conditions. The fair value of the notes payable identified as Level 3 liabilities was determined using the discounted cash flow model.

 

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 September 30, 2020 and December 31, 2019: 

 

(In thousands)

 

September 30, 2020

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                         

Marketable securities owned

  $ 55,497     $ 4,845     $ -     $ 50,652     $ 55,497  

Other investments:

                                       
Equity investments     3,777       -       -       3,777       3,777  
Investments in private equity, real estate and credit funds (1)     10,597       -       -       -       -  
Total other investments     14,374       -       -       3,777       3,777  

Total assets:

  $ 69,871     $ 4,845     $ -     $ 54,429     $ 59,274  
                                         

 

(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 private equity, real estate and credit funds (1)

    10,250       -       -       -       -  

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 September 30, 2020 and December 31, 2019, marketable securities sold but not yet purchased were primarily comprised of U.S. listed securities. As of September 30, 2020 and December 31, 2019, marketable securities was comprised of U.S. listed equity securities and CLO debt securities.

 

The fair value of the investments in private equity, real estate and credit funds was measured using the net asset value as a practical expedient. These investments are nonredeemable and had unfunded commitments of $3.5 million and $3.8 million as of September 30, 2020 and December 31, 2019 respectively.

 

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 nine months ended September 30, 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 asset 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 nine months ended September 30, 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  
Accrued interest   1,720     N/A     1,720  
Unrealized gains on investments, recognized in OCI   4,094     N/A     4,094  
Unrealized losses on investments, recognized in earnings     (1,013 )     444       (569 )
Balance as of June 30, 2020   $ 51,021     $ 3,711     $ 54,732  
Accrued interest   2,143     N/A     2,143  
Unrealized gains on investments, recognized in OCI   235     N/A     235  
Unrealized losses on investments, recognized in earnings     (2,746 )     65       (2,681 )

Balance as of September 30, 2020

  $ 50,653     $ 3,776     $ 54,429  

 

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 nine months ended September 30, 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.

 

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 September 30, 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

 

September 30, 2020

   

December 31, 2019

   

September 30, 2020

   

December 31, 2019

 

CLO debt securities

 

Discounted cash flows

 

Discount rate

    17.5% (N/A)       17.5% (N/A)     $ 50,652     $ 57,856  
        Default rate     2.0%-3.0% (2.4%)       2.0% (N/A)                  
        Severity rate     25.0% (N/A)       25.0% (N/A)                  
        Prepayment rate     10.0%-25.0% (15.2%)       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)     $ 3,167     $ 3,550  
        Discount rate     15.7% (N/A)       17.7% (N/A)                  
                                         

(1)

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

 

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 September 30, 2020 and December 31, 2019.

 

 

14

 

 

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 September 30, 2020 and December 31, 2019:

 

   

September 30, 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

  $ 51,094     $ -     $ (442 )   $ 50,652       3     $ 64,377     $ -     $ (6,521 )   $ 57,856       3  

 

The following table summarizes the fair value and amortized cost of the available-for-sale securities by contractual maturity as of September 30, 2020 and December 31, 2019:

 

   

September 30, 2020

   

December 31, 2019

 

(In thousands)

 

Available-for-sale

   

Available-for-sale

 
   

Amortized cost

   

Fair value

   

Amortized cost

   

Fair value

 

5-10 years

  $ 30,089     $ 28,580     $ 38,451       33,877  
10+ years     21,005       22,072       25,926       23,979  

Total

  $ 51,094     $ 50,652     $ 64,377     $ 57,856  

 

 

In July 2020, the Company entered into a Seventh Amendment to its Credit Facility with CNB, that, among other things, requires the Company maintain a minimum of $6.0 million of CLO debt securities, based on their fair value as of June 30, 2020, pledged as collateral supporting the obligations under the Credit Agreement. See Note 7, Debt, for more information on the Seventh Amendment.

 

 

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. See Note 2 for additional information on deconsolidation. A summary of the activity in the allowance for loan losses for the three and nine months ended September 30, 2019 is as follows:

 

(In thousands)

 

Nine Months Ended September 30,

 
   

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

  $ -     $ -  

 

Loans Held for Investment

 

As of September 30, 2020 and December 31, 2019, the number of loans held for investment was four. The Company reviews the credit quality of these loans 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. 

 

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 September 30, 2020 and December 31, 2019. There were no loan losses during the three and nine months ended September 30, 2020. A summary of the activity in loan losses for the three and nine months ended September 30, 2019 is as follows:

 

(in thousands)

 

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2019

   

2019

 
   

Impaired

   

Non-impaired

   

Impaired

   

Non-impaired

 

Balance, at beginning of the period

  $ -     $ -     $ (218 )   $ (181 )

Provision for loan losses

                               

Specific

    (438 )     -       (438 )     -  

General

    -       -       -       -  

Charge off

    -       -       218       -  

Derecognition due to deconsolidation

    -       -       -       181  

Balance, at end of the period

  $ (438 )   $ -     $ (438 )   $ -  

 

15

 

 

 

7. Debt

 

Bond Payable

 

(In thousands)

 

September 30, 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     (3,049 )     (3,416 )
Less: Consolidation elimination     (2,135 )     -  

Total bond payable, net

  $ 80,816     $ 82,584  

 

The 7.25% senior notes due 2027 (the “2027 Senior Notes”) and the 6.875% senior notes due 2029 (the "2029 Senior Notes") (the 2027 and 2029 Senior Notes are collectively referred to as 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 September 30, 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 2029 Senior Notes and 2027 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 is included in “Gain on repurchase, reissuance or early retirement of debt” on the Consolidated Statements of Operations.

 

Note Payable, Lines of Credit and Credit Facilities

 

(In thousands)

 

Outstanding Balance

 
   

September 30, 2020

   

December 31, 2019

 
                 

Revolver / Credit Facility

  $ 5,983     $ 5,983  
Paycheck Protection Program (the "PPP") loan     3,798       -  
Note payable to an affiliate (Note 18)     829       829  

Total note payable, lines of credit, and credit facilities

  $ 10,610     $ 6,812  

 

In April 2014, JMP Holding LLC (“JMP Holding”) and City National Bank (“CNB”) entered into a revolving $25.0 million credit facility that matures on December 31, 2020 (the “Revolver”). The credit agreement governing the Revolver (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 Agreement's execution. The Revolver bears interest at a rate of LIBOR plus 225 bps and the Company’s outstanding balance on the Revolver was $6.0 million as of September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, the Company had letters of credit outstanding under the Revolver supporting office lease obligations of approximately $1.1 million in the aggregate. Upon maturity, if the revolving period has not been 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) the last day of the fiscal quarter, prior to the earliest maturity date of any senior unsecured notes issued by JMP Group Inc. or JMP Group LLC then outstanding (but no less than 60 days), unless certain liquidity requirements are met by the Company.

 

On July 16, 2020, JMP Holding entered into a Seventh Amendment to the Credit Agreement, in order to, among other provisions, (i) allow JMP Holding to incur liens of certain clearing agents in the ordinary course of business, (ii) reduce the margin applicable to LIBOR loans from 2.25% to 2.00% and (iii) require that JMP Holding maintain a minimum of $6.0 million of CLO debt securities, based on their fair value as of June 30, 2020, pledged as collateral supporting the obligations under the Credit Agreement and refrain from exercising any right to call the related CLO entities or cause the liquidation of such CLO entities.

 

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.

 

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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, the Company has entered into a limited recourse pledge agreement whereby the Company has 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 (the "Line of Credit") with CNB to be used for regulatory capital purposes during its securities underwriting activities. The unused portion of the Line of Credit accrues an unused fee at the rate of 0.25% per annum, payable monthly. On June 30, 2021, any outstanding amount under the Line of Credit will convert to a term loan maturing on June 30, 2022. There was no borrowing on this Line of Credit as of September 30, 2020 and December 31, 2019. Borrowings under the Line of Credit will bear interest at a rate to be agreed upon at the time of advance between the Company and CNB.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) was enacted in response to market conditions related to the coronavirus ("COVID-19") pandemic. The CARES Act includes many measures to help companies, including providing loans to qualifying companies, under the Paycheck Protection Program (the "PPP") offered by the U.S. Small Business Administration (the “SBA”). On April 17, 2020, JMP Securities entered into a promissory note (the “PPP Loan”) with CNB as the lender (the “Lender”), pursuant to which the Lender agreed to loan the Company $3.8 million. The proceeds of the PPP Loan were available to be used to pay for payroll costs, rent and other eligible costs. As of September 30, 2020, the Company has used all of the PPP Loan proceeds for eligible costs and expects the PPP Loan to be forgiven in full.

 

The PPP Loan bears interest at the rate of 1% per annum. To the extent that amounts owed under the PPP Loan, or a portion of them, are not forgiven, the Company will be required to make principal and interest payments. No payments are required until the date the SBA makes a determination on the amount of loan forgiveness. The PPP Loan matures in June 2022. The PPP Loan includes events of default. Upon the occurrence of an event of default, the Lender will have the right to exercise remedies against the Company, including the right to require immediate payment of all amounts due under the PPP Loan.

 

 

8. Other Assets and Other Liabilities

 

At September 30, 2020 and December 31, 2019, other assets and other liabilities consisted of the following:

 

(In thousands)

               
   

September 30, 2020

   

December 31, 2019

 

Accounts receivable

  $ 5,141     $ 7,053  
Prepaid expenses     11,337       5,152  
Deferred tax asset     20,935       21,406  
Loans held for sale (1)     2,412       2,412  
Other assets     252       230  

Total other assets

  $ 40,077     $ 36,253  

 

(1) Loans held for sale are carried at the lower of cost or fair value less cost to sell.

 

(In thousands)

               
   

September 30, 2020

   

December 31, 2019

 

Accounts payable & accrued liabilities

  $ 6,408     $ 5,015  
Deferred compensation liabilities     4,581       2,517  
Deferred tax liability     8,132       8,645  
Other liabilities     364       3,301  

Total other liabilities

  $ 19,485     $ 19,478  

 

 

 

9. Shareholders’ Equity

 

Self-Tender Offers

 

On February 24, 2020, the Company launched a 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.

 

Quarterly Cash Distributions

 

On February 19, 2020, the Company suspended its quarterly cash distributions program on outstanding shares.

 

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10. 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. Upon an exercise or vesting, the Company will issue new shares from authorized but unissued shares or provide shares from treasury shares.

 

The following table summarizes the share-based compensation expense for the three and nine months ended September 30, 2020 and 2019.

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 

(In thousands)

 

2020

   

2019

   

2020

   

2019

 

Restricted stock unit awards

  $ 353     $ 534     $ 1,008     $ 1,590  

Stock option awards

    151       -       392       -  

Share-based compensation expense

  $ 504     $ 534     $ 1,401     $ 1,590