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 March 31, 2021 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 May 10, 2021: 19,852,493.

 



 

 
 

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 as of March 31, 2021 (Unaudited) and December 31, 2020

4

 

Consolidated Statements of Operations For The Three Months Ended March 31, 2021 and 2020 (Unaudited)

5

  Consolidated Statements of Comprehensive Income (Loss) For The Three Months Ended March 31, 2021 and 2020 (Unaudited) 6
 

Consolidated Statements of Changes in Shareholders' Equity For The Three Months Ended March 31, 2021 and 2020 (Unaudited)

7

 

Consolidated Statements of Cash Flows For The Three Months Ended March 31, 2021 and 2020 (Unaudited)

8

 

Notes to Consolidated Financial Statements (Unaudited)

10

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

     

PART II.

OTHER INFORMATION

42

     

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3.

Defaults Upon Senior Securities

43

Item 4.

Mine Safety Disclosures

43

Item 5.

Other Information

43

Item 6.

Exhibits

43

   

EXHIBIT INDEX

44

   

SIGNATURES

45

 

2

 

 

 

 AVAILABLE INFORMATION

 

JMP Group LLC is required to file current, annual and quarterly reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Securities and Exchange Commission (the “SEC”). The SEC maintains an internet website at http://www.sec.gov, from which interested persons can electronically access JMP Group LLC’s SEC filings.

 

JMP Group LLC provides its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Forms 3, 4 and 5 filed by or on behalf of directors, executive officers and certain large shareholders, and any amendments to those documents filed or furnished pursuant to the Exchange Act free of charge on the Investor Relations section of its website located at http://www.jmpg.com. These filings will become available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. From time to time JMP Group LLC may use its website as a channel of distribution of material company information.

 

JMP Group LLC also makes available, in the Investor Relations section of its website and will provide print copies to shareholders upon request, (i) its corporate governance guidelines, (ii) its code of business conduct and ethics, and (iii) the charters of the audit, compensation, and corporate governance and nominating committees of its board of directors. These documents, as well as the information on the website, are not intended to be part of this quarterly report on Form 10-Q (the “Quarterly Report”) and inclusions of the internet address in this Quarterly Report. JMP Group LLC also uses the Investor Relations section of its website as a means of complying with its disclosure obligations under Regulation FD. Accordingly, you should monitor the Investor Relations section of JMP Group LLC's website in addition to following JMP Group LLC’s SEC filings, press releases and investor presentation materials. 

 

3

 

 

PART I. FINANCIAL INFORMATION

 

 

ITEM 1.

Financial Statements

 

JMP Group LLC

Consolidated Statements of Financial Condition

(Unaudited)

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

 

   

March 31, 2021

   

December 31, 2020 (1)

 

Assets

               
Cash and cash equivalents   $ 61,204     $ 91,444  
Restricted cash     1,293       1,287  
Investment banking fees receivable     17,277       13,676  
Marketable securities owned at fair value (includes $5,660 and $5,696 pledged as collateral at March 31, 2021 and December 31, 2020, respectively)     57,653       55,494  
Other investments (includes $15,006 and $17,611 measured at fair value at March 31, 2021 and December 31, 2020, respectively)     25,093       26,821  
Loans held for investment, net of allowance for loan losses     901       994  
Interest receivable     312       336  
Fixed assets, net     2,855       3,118  
Operating lease right-of-use asset     15,353       16,244  
Deferred tax asset     17,926       17,895  
Other assets     15,396       14,022  

Total assets

  $ 215,263     $ 241,331  
                 

Liabilities and Equity

               

Liabilities:

               
Marketable securities sold, but not yet purchased, at fair value   $ 446     $ -  
Accrued compensation     18,264       46,353  
Interest payable     610       706  
Note payable     10,610       10,610  
Bond payable (net of debt issuance costs of $2,600 and $2,953 at March 31, 2021 and December 31, 2020, respectively)     71,289       80,912  
Operating lease liability     19,997       21,130  
Deferred tax liability     9,298       8,482  
Other liabilities     18,269       10,730  
Total liabilities     148,783       178,923  
                 

Commitments and Contingencies (Note 14)

               

JMP Group LLC Shareholders' Equity

               
Common shares, $0.001 par value, 100,000,000 shares authorized at March 31, 2021 and December 31, 2020; 22,797,092 shares issued at March 31, 2021 and December 31, 2020; 19,835,721 and 19,789,821 shares outstanding at March 31, 2021 and December 31, 2020, respectively     23       23  
Additional paid-in capital     134,259       134,065  
Treasury shares at cost, 3,161,548 and 3,007,271 shares at March 31, 2021 and December 31, 2020, respectively     (13,286 )     (13,478 )
Accumulated other comprehensive income (loss)     2,149       (369 )
Accumulated deficit     (56,212 )     (57,301 )
Total JMP Group LLC shareholders' equity     66,933       62,940  
Non-controlling interest     (453 )     (532 )
Total equity     66,480       62,408  

Total liabilities and equity

  $ 215,263     $ 241,331  

 

(1)

The statement of financial condition as of December 31, 2020 is derived from the audited financial statements as of that date.

 

See accompanying notes to consolidated financial statements.

 

4

 

 

 

JMP Group LLC

Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 
                 

Revenues

               

Investment banking

  $ 32,569     $ 14,625  

Brokerage

    5,905       4,187  

Asset management fees

    2,169       1,716  

Principal transactions

    (3,211 )     (17,552 )

Net dividend income

    -       227  

Other income

    816       935  

Non-interest revenues

    38,248       4,138  
                 

Interest income

    2,101       2,214  

Interest expense

    (1,568 )     (1,782 )

Net interest income

    533       432  
                 

(Loss) gain on repurchase, reissuance or early retirement of debt

    (288 )     697  

Total net revenues

    38,493       5,267  
                 

Non-interest expenses

               

Compensation and benefits

    29,945       16,213  

Administration

    1,491       2,222  

Brokerage, clearing and exchange fees

    680       634  

Travel and business development

    67       922  

Managed deal expenses

    1,398       588  

Communications and technology

    1,107       1,129  

Occupancy

    1,198       1,199  

Professional fees

    827       890  

Depreciation

    275       548  

Other

    (42 )     -  

Total non-interest expenses

    36,946       24,345  

Net income (loss) before income taxes

    1,547       (19,078 )

Income tax expense (benefit)

    379       (7,239 )

Net income (loss)

    1,168       (11,839 )

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

    79       (91 )

Net income (loss) attributable to JMP Group LLC

  $ 1,089     $ (11,748 )
                 

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

               

Basic

  $ 0.05     $ (0.60 )

Diluted

  $ 0.05     $ (0.60 )
                 

Weighted average common shares outstanding:

               

Basic

    19,824       19,532  

Diluted

    20,678       19,532  

 

See accompanying notes to consolidated financial statements.

 

5

 

 

 

JMP Group LLC

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 

Net income (loss)

  $ 1,168     $ (11,839 )

Other comprehensive income:

               

Net unrealized losses on available-for-sale securities, during the period, net of income tax benefit of ($308) and ($3,163)

    (886 )   $ (8,609 )

Less: Reclassification adjustments for net losses on available-for-sale securities, net of income tax provision of $1,184 and $3,633

    3,403       9,890  

Net other comprehensive income, net of income tax provision of $876 and $470

    2,517       1,281  

Comprehensive income (loss)

    3,685       (10,558 )

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

    79       (91 )

Comprehensive income (loss) attributable to JMP Group LLC

  $ 3,606     $ (10,467 )

 

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, 2020

    22,797     $ 23     $ (13,478 )   $ 134,065     $ (57,301 )   $ (369 )   $ (532 )   $ 62,409  
Net income     -       -       -       -       1,089       -       79       1,168  

Additional paid-in capital - share-based compensation

    -       -       -       194       -       -       -       194  

Purchases of shares of common shares for treasury

    -       -       192       -       -       -       -       192  
Other comprehensive income     -       -       -       -       -       2,518       -       2,518  
Balance, March 31, 2021     22,797       23       (13,286 )     134,259       (56,212 )     2,149       (453 )     66,481  

 

   

JMP Group LLC's Equity

                 
   

Common Shares

   

Treasury

   

Additional Paid-In

   

Accumulated

   

Accumulated Other Comprehensive

   

Non-controlling

   

Total

 
   

Shares

   

Amount

   

Shares

   

Capital

   

Deficit

   

Income (Loss)

   

Interest

   

Equity

 

Balance, December 31, 2019

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

Net loss

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

Additional paid-in capital - share-based compensation

    -       -       -       266       -       -       -       266  

Purchases of shares of common shares for treasury

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

Reissuance of shares of common shares from treasury

    -       -       200       (32 )     -       -       -       168  

Other comprehensive income

    -       -       -       -       -       1,281       -       1,281  
Balance, March 31, 2020     22,797       23       (14,698 )     134,128       (64,336 )     (3,488 )     (417 )     51,212  

 

See accompanying notes to consolidated financial statements.

 

7

 
 

 

JMP Group LLC

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 

Cash flows from operating activities:

               
Net income (loss)   $ 1,168     $ (11,839 )

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

               
Loss (gain) on repurchase, reissuance or early retirement of debt     288       (697 )

Change in other investments:

               
Income from investments in equity method investees     (533 )     (297 )
Loss (gain) on other investments     120       (292 )
Depreciation and amortization     134       435  
Share-based compensation expense     444       432  
Distributions of investment income from equity method investments     355       256  
Deferred income tax expense (benefit)     379       -  
Other, net     (40 )     6  

Net change in operating assets and liabilities:

               
Decrease in interest receivable     24       110  
(Increase) decrease in receivables     (3,559 )     3,309  
Decrease in marketable securities     2,949       18,828  
Increase in other assets     (1,861 )     (5,940 )
Increase (decrease) in marketable securities sold, but not yet purchased     446       (1,896 )
(Increase) decrease in interest payable     (96 )     191  
Decrease in accrued compensation     (28,089 )     (24,661 )
Increase (decrease) in other liabilities     7,540       (1,188 )
Net cash used in operating activities     (20,331 )     (23,243 )
                 

Cash flows from investing activities:

               
Purchases of fixed assets     (14 )     (266 )
Purchases of other investments     (829 )     (39 )
Sales or distributions from other investments     901       13,694  
Sale, payoff and principal receipts on loans held for investment     97       34  
Net cash provided by investing activities     155       13,423  

 

See accompanying notes to consolidated financial statements.

 

8

 

 

JMP Group LLC

Consolidated Statements of Cash Flows - (Continued)

(Unaudited)

(In thousands)

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 

Cash flows from financing activities:

               
Repurchase of bonds payable     (10,000 )     (1,349 )
Employee taxes paid on shares withheld for tax-withholding purposes     (58 )     (26 )
Net cash used in financing activities     (10,058 )     (1,375 )
Net decrease in cash, cash equivalents, and restricted cash     (30,234 )     (11,195 )
Cash, cash equivalents and restricted cash, beginning of period     92,731       50,917  
Cash, cash equivalents and restricted cash, end of period   $ 62,497     $ 39,722  
                 

Supplemental disclosures of cash flow information:

               
Cash paid during the period for interest   $ 1,664     $ 1,680  
Cash received during the period for taxes, net of refunds   $ -     $ (7 )
                 

Non-cash investing and financing activities:

               
Reissuance of common shares from treasury related to vesting of restricted share units   $ 250     $ 200  

 

See accompanying notes to consolidated financial statements. 

 

9

 

JMP Group LLC

Notes to Consolidated Financial Statements

March 31, 2021

(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”) and JMP Asset Management LLC (“JMPAM”). The Company conducts certain principal investment transactions through JMP Investment Holdings LLC (“JMP Investment Holdings”) and other subsidiaries. The above entities, other than HCAP Advisors, are wholly-owned subsidiaries. JMP Securities is a U.S. registered broker-dealer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is a member of the Financial Industry Regulatory Authority (“FINRA”). JMP Securities operates as an introducing broker and does not hold funds or securities for, or owe any money or securities to, customers and does not carry accounts for customers. All customer transactions are cleared through another broker-dealer on a fully disclosed basis. HCS is a registered investment advisor under the Investment Advisers Act of 1940, as amended, and provides investment management services for sophisticated investors in investment partnerships and other entities managed by HCS. HCAP Advisors provides investment advisory services to Harvest Capital Credit Corporation (“HCC”), a publicly-traded business development company. JMPAM currently manages two fund strategies: one that invests in real estate and real estate-related enterprises and another that provides credit to small and midsized private companies. JMPCA, which was a wholly-owned subsidiary until March 19, 2019, is an asset management platform that underwrites and manages investments in senior secured debt. The Company completed a Reorganization Transaction in January 2015 pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Group LLC (the “Reorganization Transaction”). The Company entered into a Contribution Agreement in November 2017 pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Investment Holdings, which is a wholly-owned subsidiary of JMP Group LLC.

 

Recent Transactions

 

 In February 2020, Medalist Partners Corporate Finance LLC ("MPCF") completed the securitization of Medalist Partners Corporate Finance CLO VI Ltd upon which the related CLO VI warehouse was liquidated. The Company does not hold any subordinated notes of Medalist Partners Corporate Finance CLO VI Ltd.

 

On December 23, 2020, HCC and Portman Ridge Finance Corporation (“PTMN”) announced that they have entered into a definitive agreement under which HCC will merge with and into PTMN, a business development company managed by Sierra Crest Investment Management LLC (“Sierra Crest”), an affiliate of BC Partners Advisors L.P. The parties currently expect the transaction to be completed in the second calendar quarter of 2021. The Company’s partially-owned subsidiary HCAP Advisors provides investment advisory services to HCC. In addition, the Company had investments in HCC common stock of $8.5 million as of March 31,2021. In connection with the above transaction, HCC stockholders will receive aggregate consideration equal to HCC’s net asset value at closing. This consideration will be funded using PTMN shares (valued at 100% of PTMN’s net asset value per share at the time of closing of the transaction) and, to the extent the required number of PTMN shares exceeds 19.9% of the issued and outstanding shares of PTMN common stock immediately prior to the transaction closing, cash consideration in the amount of such excess. As described below, HCAP stockholders will have an opportunity, subject to certain limitations, to elect to receive either cash or PTMN shares in consideration for their HCAP shares. Additionally, all HCAP stockholders will receive an additional cash payment from Sierra Crest of $2.15 million in the aggregate, or approximately $0.36 per share.

 

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, 2020 filed with the SEC on March 29, 2021 (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 March 31, 2021 and December 31, 2020 relate to the interest of third parties in the partially-owned subsidiaries. Certain prior year amounts have been reclassified to conform to current year presentation.

 

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

 

For the three months ended March 31, 2021, 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.

 

 

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.

 

Recently Adopted Accounting Guidance

 

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. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption did not materially impact the Company's consolidated financial statements or disclosure

 

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 March 31, 2021 and December 31, 2020:

 

   

March 31, 2021

 

(In thousands)

 

Carrying Value

   

Fair Value

 
           

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets:

                                       
Cash and cash equivalents   $ 61,204     $ 61,204     $ -     $ -     $ 61,204  
Restricted cash and deposits     1,293       1,293       -       -       1,293  
Marketable securities owned     57,653       9,969       -       47,684       57,653  
Equity investments     3,413       -       -       3,413       3,413  
Other investments measured at net asset value (1)     11,593       -       -       -       -  
Loans held for sale (2)     2,412       -       -       2,412       2,412  
Loans held for investment, net of allowance for loan losses     901       -       -       901       901  

Total assets:

  $ 138,469     $ 72,466     $ -     $ 54,410     $ 126,876  
                                         

Liabilities:

                                       
Notes payable   $ 10,610       -     $ 5,983     $ 4,627     $ 10,610  
Bond payable     71,289       -       74,268       -       74,268  
Marketable securities sold, but not yet purchased, at fair value     446       446       -       -       446  
Total liabilities:   $ 82,345     $ 446     $ 80,251     $ 4,627     $ 85,324  

 

   

December 31, 2020

 

(In thousands)

 

Carrying Value

   

Fair Value

 
           

Level 1

   

Level 2

   

Level 3

   

Total

 

Assets:

                                       

Cash and cash equivalents

  $ 91,444     $ 91,444     $ -     $ -     $ 91,444  

Restricted cash and deposits

    1,287       1,287       -       -       1,287  

Marketable securities owned

    55,494       7,491       -       48,003       55,494  
Equity investments     6,457       -       2,251       4,206       6,457  

Other investments measured at net asset value (1)

    11,155       -       -       -       -  

Loans held for sale (2)

    2,412       -       -       2,412       2,412  

Loans held for investment, net of allowance for loan losses

    994       -       -       994       994  

Total assets:

  $ 169,243     $ 100,222     $ 2,251     $ 55,615     $ 158,088  
                                         

Liabilities:

                                       

Notes payable

  $ 10,610     $ -     $ 5,983     $ 4,627     $ 10,610  

Bond payable

    80,912       -       79,472       -       79,472  

Total liabilities:

  $ 91,522     $ -     $ 85,455     $ 4,627     $ 90,082  

 

 

(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.

  (2) Included in Other Assets on the Consolidated Statements of Financial Condition.

 

 

12

 

 

Recurring Fair Value Measurement

 

The following tables provide information related to the Company’s assets and liabilities carried at fair value on a recurring basis at March 31, 2021 and December 31, 2020: 

 

(In thousands)

 

March 31, 2021

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                         

Marketable securities owned

  $ 57,653     $ 9,969     $ -     $ 47,684     $ 57,653  

Other investments:

                                       
Equity investments     3,413       -       -       3,413       3,413  
Investments in private equity, real estate and credit funds, measured at net asset value (1)     11,593       -       -       -       -  
Total other investments     15,006       -       -       3,413       3,413  

Total assets:

  $ 72,659     $ 9,969     $ -     $ 51,097     $ 61,066  
                                         

 

(In thousands)

 

December 31, 2020

 
   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                         

Marketable securities owned

  $ 55,494     $ 7,491     $ -     $ 48,003     $ 55,494  

Other investments:

                                       

Equity investments

    6,457       -       2,251       4,206       6,457  

Investments in private equity, real estate and credit funds, measured at net asset value (1)

    11,155       -       -       -       -  

Total other investments

    17,611       -       2,251       4,206       6,457  

Total assets:

  $ 73,105     $ 7,491     $ 2,251     $ 52,209     $ 61,951  

 

 

(1)

In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The carrying values of these lines reconciles to the parenthetical disclosure of other investments on the Consolidated Statements of Financial Condition.

 

As of March 31, 2021, marketable securities sold but not yet purchased were primarily comprised of U.S. listed securities. As of March 31, 2021 and December 31, 2020, 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 $3.2 million and $3.5 million as of March 31, 2021 and December 31, 2020 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 was a transfer of $1.4 million between Levels 2 and 1 for the three months ended March 31, 2021. For recurring fair value measurements, there were no transfers between Levels 1, 2 and 3 for the year ended December 31, 2020.

 

The Company’s Level 2 assets held in other investments as of December 31, 2020 consist of investments in publicly traded stocks. 

 

As of December 31, 2020, the Company also owns securities in two public companies subject to restrictions on transfer or sale and is therefore recorded as Level 2 assets.

 

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 determined the fair value of short-term debt, which consists of notes payable, to approximate their carrying values. This was determined as the debt has either (1) a variable interest rate tied to LIBOR and therefore reflects market conditions, or (2) a term less than one year and there have been no observable changes in the credit quality of the Company since the issuance of the debt. Based on the fair value methodology, the Company has identified short-term debt as Level 2 liabilities.

 

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 three months ended March 31, 2021, 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, 2020

  $ 48,003     $ 4,206     $ 52,209  

Investment distributions

    (1,086 )     (774 )     (1,860 )

Accrued interest

    1,960       -       1,960  

Realized/Unrealized losses on investments, recognized in earnings

    (4,587 )     (19 )     (4,606 )

Unrealized gains on investments, recognized in OCI

    3,394       -       3,394  

Balance as of March 31, 2021

  $ 47,684     $ 3,413     $ 51,097  

 

The Company’s Level 3 assets held in marketable securities consist of investments in CLO debt securities. The fair value of the CLO debt securities is determined using the net present value of discounted cash flows. The significant unobservable inputs used in the fair value measurement of these investments are presented in the Significant Unobservable Inputs table below. The Company also uses covenant compliance information provided by the CLO manager when valuing this investment. During the three months ended March 31, 2021, 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 March 31, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

 

       

Significant Unobservable Inputs

                 

(In thousands)

     

Range (Weighted-average (1))

   

Fair value

 
   

Valuation Technique

 

Description

 

March 31, 2021

   

December 31, 2020

   

March 31, 2021

   

December 31, 2020

 

CLO debt securities

 

Discounted cash flows

 

Discount rate

    13.5% (N/A)       17.5% (N/A)     $ 47,684     $ 48,003  
        Default rate     3% next 2Qs, 2% thereafter (2.2%)       2.0% (N/A)                  
        Severity rate     25.0% (N/A)       25.0% (N/A)                  
        Prepayment rate     10.0%-25.0% (18.1%)       10.0%-25.0% (18.5%)                  
       

Collateral liquidation price

    98.0%-99.0% (98.8%)       98.0%-99.0% (98.8%)                  

Equity investment

 

Discounted cash flows

 

Credit factor

    20% (N/A)       20% (N/A)     $ 3,413     $ 3,378  
        Discount rate     16.55% (N/A)       16% (N/A)                  
    Market   EBITDA multiple     (N/A)       12.0x (N/A)     $ -     $ 828  

 

(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 March 31, 2021 and December 31, 2020.

 

14

 

 

5. Available-for-Sale Securities

 

The following table summarizes available-for-sale securities in an unrealized position as of March 31, 2021 and December 31, 2020:

 

   

March 31, 2021

   

December 31, 2020

 

(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

  $ 44,787     $ 2,897     $ -     $ 47,684       3     $ 48,499     $ -     $ (496 )   $ 48,003       3  

 

The following table summarizes the fair value and amortized cost of the available-for-sale securities by contractual maturity as of March 31, 2021 and December 31, 2020:

 

   

March 31, 2021

   

December 31, 2020

 

(In thousands)

 

Available-for-Sale

   

Available-for-Sale

 
   

Amortized Cost

   

Fair Value

   

Amortized Cost

   

Fair Value

 
Less than 5 years   $ 8,605     $ 8,253     $ 9,109       8,245  

5-10 years

    36,182       39,431       39,390       39,758  
More than 10 years     -       -       -       -  

Total

  $ 44,787     $ 47,684     $ 48,499     $ 48,003  

 

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 Held for Investment

 

As of March 31, 2021 and December 31, 2020, the number of loans held for investment was two. 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. 

 

There were no loans past due as of March 31, 2021 and December 31, 2020. A summary of the activity in the allowance for loan losses for the three months ended March 31, 2020 and the year ended December 31, 2020 is as follows:

 

   

Three Months Ended

   

Year Ended

 

(In thousands)

  March 31, 2021     December 31, 2020  

Balance, at beginning of the period

  $ -     $ -  

Provision for loan losses

    -       (112 )

Charge off

    -       112  

Balance, at end of the period

  $ -     $ -  

 

A loan is considered to be impaired when, based on current information, it is probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the original loan agreement, including scheduled principal and interest payments. As of March 31, 2021 and December 31, 2020, zero of recorded investment amount of loans issued were individually evaluated for impairment, respectively.

 

During the three months ended March 31, 2021, the Company did not record any impairment. During the year ended December, 31, 2020, the Company recorded $0.1 million of impairment on the $1.0 million loans evaluated for impairment.

 

The Company had no troubled debt restructurings during the three months ended March 31, 2021 and the year ended December 31, 2020, respectively.

 

15

 

 

 

7. Debt

 

Bond Payable

(In thousands)

 

March 31, 2021

   

December 31, 2020

 

7.25% Senior Notes due 2027 (1)

  $ 40,000     $ 50,000  
6.875% Senior Notes due 2029     36,000       36,000  

Total outstanding principal

  $ 76,000     $ 86,000  
Less: Debt issuance costs     (2,576 )     (2,953 )
Less: Senior Notes repurchased (2)     (2,135 )     (2,135 )

Total bond payable, net

  $ 71,289     $ 80,912  

 

(1) In February 2021, the Company redeemed $10.0 million par value of its issued and outstanding 2027 Senior Notes. The Company recognized a $0.3 million loss on redemption, which is included in "(Loss) gain on repurchase, reissuance or early retirement of debt" on the Consolidated Statement of Operations.
(2) 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 “(Loss) gain on repurchase, reissuance or early retirement of debt” on the Consolidated Statements of Operations.

 

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 March 31, 2021 and December 31, 2020, the Company was in compliance with the debt covenants in the indentures. 

 

JMP Group Inc., a wholly-owned subsidiary of JMP Group LLC, is the primary obligor of the Company's 2027 Senior Notes. Pursuant to the indenture of the 2027 Senior Notes, JMP Group LLC and JMP Investment Holdings LLC (the “Guarantors”) are the guarantors of the 2027 Senior Notes. The Guarantors jointly and severally provide a full and unconditional guarantee of the due and punctual payment of the principal and interest on the 2027 Senior Notes and the due and punctual payment or performance of all other obligations of JMP Group Inc. under the indenture governing the 2027 Senior Notes.

 

Note Payable, Lines of Credit and Credit Facilities

 

(In thousands)

 

Outstanding Balance

 
   

March 31, 2021

   

December 31, 2020

 

$25 million, JMP Holding Credit Agreement

  $ 5,983     $ 5,983  
Paycheck Protection Program (the "PPP") loan     3,798       3,798  
Note payable to an affiliate (Note 16)     829       829  

Total note payable, lines of credit, and credit facilities

  $ 10,610     $ 10,610  

 

JMP Holding LLC (the “Borrower”), a wholly owned subsidiary of the Company, entered into a Second Amended and Restated Credit Agreement dated April 30, 2014 among the Borrower, the lenders from time to time party thereto (the “Lenders”) and CNB, as administrative agent for the Lenders (as amended, the “Credit Agreement”).

 

On July 16, 2020, the Borrower 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.

 

On December 31, 2020, the Borrower entered into an Amendment Number Eight (the “Eighth Amendment”) to that certain Second Amended and Restated Credit Agreement dated April 30, 2014 among the Borrower, the Lenders and CNB. The Eighth Amendment extended the outside maturity date of the Revolving Loan under the Credit Facility from December 31, 2020 to December 31, 2022 and removed the mechanism whereby the Revolving Loan would convert into a term loan for 12 months after the revolving period ends. The Eighth Amendment amended certain financial covenants and introduced a definition of “Borrowing Base”, which is a sum of certain assets of the Loan Parties, and added a provision that caps the total amount that can be borrowed under the Revolving Loan to the amount of the Borrowing Base if the Borrowing Base is lower than the Maximum Revolver Amount of $25 million. As of March 31, 2021 and December 31, 2020, the Borrowing Base exceeded $25 million, respectively.

 

The Credit Agreement provides a $25.0 million revolving line of credit (the “Revolver”) through December 31, 2022 bears interest at a rate of LIBOR plus 225 bps.

 

The Credit Agreement provides that the Revolver may be used, on a revolving basis, to fund specified permitted investments in collateralized loan obligation vehicles. In addition, up to $5.0 million of the Revolver may be used, on a revolving basis, to fund other types of permitted investments and acquisitions and for working capital.

 

As of March 31, 2021, the Borrower had drawn $6.0 million against the Revolver and had letters of credit outstanding under this facility to support office lease obligations of approximately $1.1 million in the aggregate.

 

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. As of March 31, 2021 and 2020, the Company was in compliance with the covenants under the Credit Agreement.

 

16

 

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. 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 March 31, 2021 and December 31, 2020, respectively. 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 March 31, 2021, the Company has used all of the PPP Loan proceeds for eligible costs and has applied for forgiveness, and is waiting to be granted such forgiveness.

 

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. If not forgiven, 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 March 31, 2021 and December 31, 2020, other assets and other liabilities consisted of the following:

 

                 
(In thousands)   March 31, 2021     December 31, 2020  

Accounts receivable

  $ 6,470     $ 4,333  
Prepaid expenses     6,391       6,954  
Loans held for sale (1)     2,412       2,412  
Other assets     123       323  

Total other assets

  $ 15,396     $ 14,022  

 

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

 

                 
(In thousands)   March 31, 2021     December 31, 2020  

Accounts payable & accrued liabilities

  $ 12,397     $ 6,726  
Deferred compensation liabilities     5,465       3,621  
Other liabilities     407       383  

Total other liabilities

  $ 18,269     $ 10,730  

 

 

9. Shareholders’ Equity

 

Distributions on Common Shares

 

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

 

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.

 

17

 

 

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 months ended March 31, 2021 and 2020.

 

   

Three Months Ended March 31,

 

(In thousands)

 

2021

   

2020

 

Restricted stock unit awards

  $ 338     $ 317  

Stock option awards

    106       116  

Share-based compensation expense

  $ 444     $ 433  

 

Share Options

 

The following table summarizes the share option activity for the three months ended March 31, 2021:

 

   

Three Months Ended

 
   

March 31, 2021

 
   

Shares Subject to Option

   

Weighted Average Exercise Price

 
                 

Balance, beginning of year

    2,000,000     $ 3.04  
Granted     -       -  
Forfeited     -       -  

Balance, end of period

    2,000,000     $ 3.04  
                 

Options exercisable at end of period

    500,000     $ 3.04  

 

The following table summarizes the share options outstanding as well as share options vested and exercisable as of March 31, 2021 and 2020:

 

       

March 31, 2021

 
       

Options Outstanding

   

Options Vested and Exercisable

 
                                                                     
               

Weighted

                           

Weighted

                 
               

Average

   

Weighted

                   

Average

   

Weighted

         

Range of

           

Remaining

   

Average

   

Aggregate

           

Remaining

   

Average

   

Aggregate

 

Exercise

   

Number

   

Contractual

   

Exercise

   

Intrinsic

   

Number

   

Contractual

   

Exercise

   

Intrinsic

 

Prices

   

Outstanding

   

Life in Years

   

Price

   

Value

   

Exercisable

   

Life in Years

   

Price

   

Value

 
$ 3.04       2,000,000       3.85     $ 3.04     $ 5,880,000       500,000       3.85     $ 3.04     $ 1,470,000  

 

       

March 31, 2020

 
       

Options Outstanding

   

Options Vested and Exercisable

 
                                                                     
               

Weighted

                           

Weighted

                 
               

Average

   

Weighted

                   

Average

   

Weighted

         

Range of

           

Remaining

   

Average

   

Aggregate

           

Remaining

   

Average

   

Aggregate

 

Exercise

   

Number

   

Contractual

   

Exercise

   

Intrinsic

   

Number

   

Contractual

   

Exercise

   

Intrinsic

 

Prices

   

Outstanding

   

Life in Years

   

Price

   

Value

   

Exercisable

   

Life in Years

   

Price

   

Value

 
$ 3.04       2,200,000       4.85     $ 3.04     $ -       -       -     $ -     $ -  

 

The Company recognizes share-based compensation expense, net of estimated forfeitures, for share options over the vesting period using the accelerated attribution method when they are subject to graded vesting and on a straight-line basis when they are subject to cliff vesting. 

 

As of March 31, 2021 and 2020, there was $0.5 million and $1.3 million of unrecognized compensation expense related to share options, respectively.

 

There were no share options exercised during the three months ended March 31, 2021 and 2020. As a result, the Company did not recognize any current income tax benefits from the exercise of share options during both periods.

 

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

 

Restricted Share Units

 

The following table summarizes restricted share unit ("RSU") activity for the three months ended March 31, 2021:

 
   

Three Months Ended

 
   

March 31, 2021

 
   

Restricted Share Units

   

Weighted Average Grant Date Fair Value

 
                 

Balance, beginning of year

    220,209     $ 3.32  
Granted     352,797       4.66  
Vested     (55,755 )     3.17  

Balance, end of period

    517,251     $ 4.25  

 

The aggregate fair value of RSUs vested during the three months ended March 31, 2021 were $0.3 million. The income tax benefits realized from the vested RSUs were $0.07 million for the three months ended March 31, 2021.

 

The Company recognizes compensation expense, net of estimated forfeitures, for RSUs over the vesting period using the accelerated attribution method when they are subject to graded vesting and on a straight-line basis when they are subject to cliff vesting. 

 

For the three months ended March 31, 2021, the Company recognized income tax benefits of $0.07 million related to the compensation expense recognized for RSUs. As of March 31, 2021, there was $1.6 million of unrecognized compensation expense related to RSUs expected to be recognized over a weighted average period of 1.4 years.

 

The Company pays cash distribution equivalents on certain RSUs upon vesting. Distribution equivalents paid on RSUs are generally charged to retained earnings. The Company accounts for the tax benefit related to distribution equivalents paid on RSUs as an increase in additional paid-in capital.

 

18

 

 

11. Net Income (Loss) per Common Share

 

Basic net income (loss) per share for the Company is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the reporting period. Diluted net income (loss) per share is calculated by adjusting the weighted average number of outstanding shares to reflect the potential dilutive impact as if all potentially dilutive share options or RSUs were exercised or converted under the treasury share method. However, for periods that the Company has a net loss, the effect of outstanding share options or RSUs is anti-dilutive and, accordingly, is excluded from the calculation of diluted loss per share.

 

The computations of basic and diluted net income per share for the three months ended March 31, 2021 and 2020 are shown in the tables below: 

 

(In thousands, except per share data)

 

Three Months Ended March 31,

 
   

2021

   

2020

 

Numerator:

               

Net income (loss) attributable to JMP Group LLC

  $ 1,089     $ (11,748 )
                 

Denominator:

               

Basic weighted average shares outstanding

    19,824       19,532  
                 

Effect of potential dilutive securities:

               

Restricted share units and share options

    854       -  
                 

Diluted weighted average shares outstanding

    20,678       19,532  
                 

Net income (loss) per share

               

Basic

  $ 0.05     $ (0.60 )

Diluted

  $ 0.05     $ (0.60 )

 

Share options to purchase 2,200,000 of common shares for the three months ended March 31, 2020, were anti-dilutive and, therefore, were not included in the computation of diluted weighted-average common shares outstanding.

 

RSUs for 121,681 common shares for the three months ended March 31, 2020, were anti-dilutive and, therefore, were not included in the computation of diluted weighted-average common shares outstanding. Due to the net income (loss) for the three months ended March 31, 2020, all of the share options and RSUs outstanding, were anti-dilutive and, therefore, were not included in the computation of diluted weighted-average common shares outstanding.

 

19

 

 

 

12. Revenue from contracts with customers

 

The following tables represent the Company’s total revenues from contracts with customers, disaggregated by major business activity, for the three months ended March 31, 2021 and March 31, 2020, respectively.

 

(in thousands)

 

Three Months Ended March 31, 2021

 
   

Broker -Dealer

   

Asset Management

   

Eliminations

   

Total

 

Total revenues from contracts with customers

                               

Equity and debt origination

  $ 25,670     $ -     $ -     $ 25,670  

Strategic advisory and private placements

    6,899       -       -       6,899  

Total investment banking revenues

    32,569       -       -       32,569  

Commissions

    4,622       -       -       4,622  

Research payments

    1,166       -       -       1,166  

Net trading gains

    117       -       -       117  

Total brokerage revenues

    5,905       -       -       5,905  

Base management fees

    -       2,095       -       2,095  

Incentive management fees

    -       74       -       74  

Total asset management fees

    -       2,169       -       2,169  

Total revenues from contracts with customers

  $ 38,474     $ 2,169     $ -     $ 40,643  

 

(in thousands)

 

Three Months Ended March 31, 2020

 
   

Broker -Dealer

   

Asset Management

   

Eliminations

   

Total

 

Total revenues from contracts with customers

                               

Equity and debt origination

  $ 8,556     $ -     $ -     $ 8,556  

Strategic advisory and private placements

    6,069       -       -       6,069  

Total investment banking revenues

    14,625       -       -       14,625  

Commissions

    3,718       -       -       3,718  

Research payments

    1,241       -       -       1,241  

Net trading losses

    (772 )     -       -       (772 )

Total brokerage revenues

    4,187       -       -       4,187  

Base management fees

    -       1,727       (25 )     1,702  

Incentive management fees

    -       14       -       14  

Total asset management fees

    -       1,741       (25 )     1,716  

Total revenues from contracts with customers

  $ 18,812     $ 1,741     $ (25 )   $ 20,528  

 

20

 

13. Income Taxes

 

JMP Group LLC’s election to be taxed as a corporation for United States federal income tax purposes was approved by the Internal Revenue Service with an effective date of January 1, 2019. Taxable income derived from the investment activities of its previously untaxed pass-through entities will now be taxed at a U.S. federal and state corporate rate, along with the Company’s corporate subsidiaries.

 

For the three months ended March 31, 2021 and 2020, the Company recorded income tax expense of $0.4 million and tax benefit of $7.2 million, respectively. The effective tax rate is 24.50% and 37.95% for the three months ended March 31, 2021 and 2020, respectively.

 

For financial reporting purposes, the Company’s effective tax rate used for the interim periods is based on the estimated full-year income tax rate. For the three months ended March 31, 2021, the Company’s effective tax rate differs from the statutory rate primarily due to the excess tax benefit that was created after stock compensation awards were vested.

 

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 changes that are temporary and non-income based tax laws, some of which were part of the Tax Cuts and Jobs Act (TCJA). One provision of the CARES Act increases the tax deduction for net operating losses from 80% to 100% for 2018 through 2020 and allows net operating losses generated in 2018 through 2020 to be carried back up to five years. The Company has made reasonable assessments in accounting for certain effects of the CARES Act that was passed. However, the provisional impacts may be refined over the prescribed measurement period.

 

The Company recognizes deferred tax assets and liabilities in accordance with ASC 740, Income Taxes, and are determined based upon the temporary differences between the financial reporting and tax basis of the Company’s assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse.

 

 

14. Commitments and Contingencies

 

In connection with its underwriting activities, JMP Securities may, from time to time, enter into firm commitments for the purchase of securities in return for a fee. These commitments require JMP Securities to purchase securities at a specified price. Securities underwriting exposes JMP Securities to market and credit risk, primarily in the event that, for any reason, securities purchased by JMP Securities cannot be distributed at anticipated price levels. JMP Securities had no open underwriting commitments at both March 31, 2021 and December 31, 2020.

 

The marketable securities owned and the restricted cash, as well as the cash held by clearing brokers may be used to maintain margin requirements. The Company had $0.8 million and $0.5 million of cash on deposit with JMP Securities’ clearing brokers at March 31, 2021 and December 31, 2020, respectively. Furthermore, the marketable securities owned may be hypothecated or borrowed by clearing brokers.

 

Unfunded commitments are agreements to lend to a borrower, provided that all conditions have been met. The Company had no material unfunded commitments to lend at both March 31, 2021 and December 31, 2020

 

 

15. Regulatory Requirements

 

JMP Securities is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. JMP Securities had net capital of $26.4 million and $42.3 million, which were $24.9 million and $40.6 million in excess of the required net capital of $1.5 million and $1.7 million at March 31, 2021 and December 31, 2020 respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was 0.86 to 1 and 0.62 to 1 at March 31, 2021 and December 31, 2020, respectively.

 

Since all customer transactions are cleared through another broker-dealer on a fully disclosed basis, JMP Securities is not required to maintain a separate bank account for the exclusive benefit of customers in accordance with Rule 15c3-3 under the Exchange Act.

 

 

16. Related Party Transactions

 

The Company earns base management fees and incentive fees from serving as investment advisor for various entities, including corporations, partnerships limited liability companies, and offshore investment companies. The Company also owns an investment in some of such affiliated entities. As of March 31, 2021 and December 31, 2020, the aggregate fair value of the Company’s investments in the affiliated entities for which the Company serves as the investment advisor was $18.8 million and $17.3 million, respectively, which consisted of investments in hedge and other private funds of $10.3 million and $9.8 million, for the periods, respectively and an investment in HCC common stock of $8.6 million and $7.5 million for the periods, respectively. Base management fees earned from these affiliated entities were $2.1 million and $1.7 million for the three months ended March 31, 2021 and 2020. Also, the Company earned incentive fees of $0.1 million and zero, from these affiliated entities for the three months ended March 31, 2021 and 2020

 

On January 9, 2018, an affiliate purchased a $0.8 million note from the Company. As of March 31, 2021, the carrying value of note payable was $0.8 million. The note bears interest at a rate of 12.5% per annum and matures November 20, 2022.

 

On September 19, 2017, the Company made a loan to a registered investment adviser of $3.4 million at an interest rate of 15% per year. In October 2019, the Company sold 30% of the loan, or $1.0 million, to an affiliate. As of both March 31, 2021 and December 31, 2020, the Company’s portion of the outstanding loan balance to this entity was $2.4 million. The Company determined the fair vale of the loan was $2.4 million as of both March 31, 2021 and December 31, 2020 using the bid price. 

 

On November 20, 2017, the Company entered into a purchase agreement with the same registered investment advisor for the purchase of 24.9% ownership of the entity. The Company recognized its investment using the equity method, with related gains recognized in other income. The company recognized $0.1 million and $0.1 million in other income for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, the investment balance is $4.7 million and $4.5 million, respectively.

 

21

 
 

17. Litigation

 

The Company may be involved from to time in a number of judicial, regulatory, litigation and arbitration matters arising in connection with the business. The outcome of such matters the Company has been and/or currently is involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on the results of operations in any future period and a significant outcome could have a material adverse impact on the Company’s financial condition, results of operations and cash flows.

 

The Company reviews the need for any loss contingency reserves and establishes reserves when, in the opinion of management, it is probable that a matter would result in liability and the amount of loss, if any, can be reasonably estimated. Generally, given the inherent difficulty of predicting the outcome of matters the Company is involved in, particularly cases in which claimants seek substantial or indeterminate damages, it is not possible to determine whether a liability has been incurred or to reasonably estimate the ultimate or minimum amount of that liability until the case is close to resolution. For these matters, no reserve is established until such time, other than for reasonably estimable legal fees and expenses. Management, after consultation with legal counsel, believes that the currently known actions or threats will not result in any material adverse effect on the Company’s financial condition, results of operations or cash flows.

 

 

18. Financial Instruments with Off-Balance Sheet Risk, Credit Risk or Market Risk

 

The majority of the Company’s transactions, and consequently the concentration of its credit exposure, is with its clearing brokers. The Company may enter into margin transactions in its principal trading accounts held at a clearing broker. Such margin transactions are collateralized by the Company’s cash and securities held in those accounts. Clearing brokers have the right to pledge or hypothecate such collateralized assets under the margin transaction agreement. The receivable from the clearing brokers include commissions receivable related to security transactions of customers and amounts receivable in connection with the trading of proprietary positions. The Company is also exposed to credit risk from other brokers, dealers and other financial institutions with which it transacts business. In the event that these other parties do not fulfill their obligations in the course of business dealings, the Company may be exposed to credit risk.

 

The Company’s trading activities include providing securities brokerage services to institutional clients. To facilitate these customer transactions, the Company purchases proprietary securities positions (“long positions”) in equity securities. The Company also enters into transactions to sell securities not yet purchased (“short positions”), which are recorded as liabilities on the Consolidated Statements of Financial Condition. The Company is exposed to market risk on these long and short securities positions as a result of decreases in market value of long positions and increases in market value of short positions. Short positions create a liability to purchase the security in the market at prevailing prices. Such transactions result in off-balance sheet market risk as the Company’s ultimate obligation to satisfy the sale of securities sold, but not yet purchased, may exceed the amount recorded in the Consolidated Statements of Financial Condition. To mitigate the risk of losses, these securities positions are marked to market daily and are monitored by management to assure compliance with limits established by the Company.

 

JMP Securities has agreed to indemnify its clearing brokers for losses that the clearing brokers may sustain from the accounts of customers introduced by JMP Securities. Should a customer not fulfill its obligation on a transaction, JMP Securities may be required to buy or sell securities at prevailing market prices in the future on behalf of its customer. JMP Securities’ indemnification obligations to its clearing brokers have no maximum amount. All unsettled trades at March 31, 2021 and December 31, 2020 have subsequently settled with no resulting material liability to the Company. For the three months ended March 31, 2021 and 2020, the Company had no material loss due to counterparty failure, and had no obligations outstanding under the indemnification arrangement as of March 31, 2021 and December 31, 2020.

 

The Company is engaged in various investment banking and brokerage activities whose counterparties primarily include broker-dealers, banks and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. It is the Company’s policy to review, as necessary, the credit standing of each counterparty with which it conducts business.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a borrower to a third party. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to borrowers. In addition, the Company had unfunded commitments to lend to a borrower. The Company had no material unfunded commitments to lend to a borrower as of March 31, 2021 and December 31, 2020.

 

22

 

 

 

19. Business Segments

 

The Company’s business results are categorized into the following four business segments: Broker-Dealer, Asset Management Fee Income, Investment Income, and Corporate Costs. The Broker-Dealer segment includes a broad range of services, such as underwriting and acting as a placement agent for public and private capital markets raising transactions and financial advisory services in M&A, restructuring and other strategic transactions. The Broker-Dealer segment also includes institutional brokerage services and equity research services to our institutional investor clients. The Asset Management Fee Income segment includes the management of a broad range of pooled investment vehicles, including the Company’s hedge funds, private equity funds, hedge funds of funds, and collateralized loan obligations (through March 2019). The Investment Income segment includes income from the Company’s principal investments in public and private securities and investment funds managed by HCS, as well as any other net interest and income from investing activities, and interest expense related to the Company's bond issuance. The Corporate Costs segment also includes expenses related to JMP Group LLC, JMP Holding LLC and JMP Group Inc., and is mainly comprised of corporate overhead expenses.

 

Management uses operating net income, a Non-GAAP financial measure, as a key metric when evaluating the performance of the Company's core business strategy and ongoing operations. This measure adjusts the Company’s net income as follows: (i) reverses share-based compensation expense recognized during the period, (ii) recognizes 100% of the share-based compensation expense in the period the award was granted, instead of recognizing it over the vesting period as required under GAAP, (iii) reverses amortization expense related to an intangible asset resulting from the repurchase of a portion of the equity of CLO III prior to March 31, 2019; (iv) unrealized gains or losses on commercial real estate investments, adjusted for non-cash expenditures, including depreciation and amortization; (v) reverses net unrealized gains and losses on strategic equity investments and warrants; (vi) reverses any impairment of CLO debt securities recognized in principal transactions, (vii) reverses one-time transaction costs related to the refinancing or repurchase of debt; and (viii) a combined federal, state and local income tax rate of 26% at the consolidated taxable parent company, JMP Group LLC. In management's view of the Company's performance, these charges may obscure the Company’s operating income and complicate an assessment of the Company’s core business activities. The operating pre-tax net income facilitates a meaningful comparison of the Company’s results from period to period.

 

23

 

 

Segment Operating Results

 

Discussed below is our Operating Net Income by segment. This information is reflected in a manner utilized by management to assess the financial operations of the Company's various business lines.

 

   

Three Months Ended March 31, 2021

                   

(In thousands)

 

Broker-Dealer

   

Asset Management

   

Corporate Costs

   

Eliminations

   

Total Segments

   

Adjustments

     

Consolidated GAAP

 
           

Asset Management Fee Income

   

Investment Income

   

Total Asset Management

                                           

Revenues

                                                                         

Investment banking

  $ 32,569     $ -     $ -     $ -     $ -     $ -     $ 32,569     $ -       $ 32,569  

Brokerage

    5,905       -       -       -       -       -       5,905       -         5,905  

Asset management related fees

    21       2,174       352       2,526       -       (25 )     2,522       (353 )

(a)

    2,169  

Principal transactions

    (444 )     -       1,110       1,110       -       -       666       (3,877 )

(b)

    (3,211 )

Other income

    -       -       -       -       -       -       -       816  

(a)

    816  
Net interest income     -       -       558       558       -       -       558       (25 ) (c)     533  
(Loss) on repurchase, reissuance or early retirement of debt     -       -       -       -       -       -       -       (288 ) (d)     (288 )

Total net revenues

    38,051       2,174       2,020       4,194       -       (25 )     42,220       (3,727 )       38,493  
                                                                           
Non-interest expenses     32,308       2,207       297       2,504       2,320       (25 )     37,107       (161 ) (e)     36,946  
                                                                           

Operating income (loss) before taxes

    5,743       (33 )     1,723       1,690       (2,320 )     -       5,113       (3,566 )       1,547  
                                                                           

Income tax expense (benefit)

    1,493       (8 )     447       439       (603 )     -       1,329       (950 )

(f)

    379  
Net income attributable to non-controlling interest     -       -       -       -       -       -       -       79   (a),(c),(e)     79  
                                                                           
Operating net income (loss)   $ 4,250     $ (25 )   $ 1,276     $ 1,251     $ (1,717 )   $ -     $ 3,784     $ (2,695 ) (g)   $ 1,089  

 

   

As of March 31, 2021

                 

(In thousands)

 

Broker-Dealer

   

Asset Management

   

Corporate Costs

   

Eliminations

   

Total Segments

   

Adjustments

   

Consolidated GAAP

 
           

Asset Management Fee Income

   

Investment Income

   

Total Asset Management