UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended |
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission File Number:
JMP Group LLC
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices and Zip code)
(
(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 | ||
| | | | ||
| The |
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.
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).
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 |
| ☐ |
| | ☒ |
| Smaller reporting company |
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| Emerging growth company |
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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
JMP Group LLC shares representing limited liability company interests outstanding as of November 10, 2021:
Table of Contents
TABLE OF CONTENTS
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Page |
| PART I. |
FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements - JMP Group LLC |
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| Consolidated Statements of Financial Condition as of September 30, 2021 (Unaudited) and December 31, 2020 |
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| Consolidated Statements of Operations For The Three and Nine Months Ended September 30, 2021 (Unaudited) and 2020 |
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| Consolidated Statements of Comprehensive Income (Loss) For The Three and Nine Months Ended September 30, 2021 (Unaudited) and 2020 | 6 | |
| Consolidated Statements of Changes in Shareholders' Equity For The Three and Nine Months Ended September 30, 2021 (Unaudited) and 2020 |
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| Consolidated Statements of Cash Flows For The Nine Months Ended September 30, 2021 (Unaudited) and 2020 |
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| Notes to Consolidated Financial Statements (Unaudited) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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| Item 4. |
Controls and Procedures |
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| PART II. |
OTHER INFORMATION |
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| Item 1. |
Legal Proceedings |
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| Item 1A. |
Risk Factors |
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| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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| Item 3. |
Defaults Upon Senior Securities |
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| Item 4. |
Mine Safety Disclosures |
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| Item 5. |
Other Information |
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| Item 6. |
Exhibits |
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| EXHIBIT INDEX |
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| SIGNATURES |
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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.
| ITEM 1. |
Financial Statements |
JMP Group LLC
Consolidated Statements of Financial Condition
(Unaudited)
(Dollars in thousands, except share and per share data)
| September 30, 2021 | December 31, 2020 (1) | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Investment banking fees receivable | ||||||||
| Marketable securities owned at fair value (includes $ and $ pledged as collateral at September 30, 2021 and December 31, 2020, respectively) | ||||||||
| Other investments (includes $ and $ measured at fair value at September 30, 2021 and December 31, 2020, respectively) | ||||||||
| Loans held for investment, net of allowance for loan losses | ||||||||
| Interest receivable | ||||||||
| Fixed assets, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Deferred tax asset | ||||||||
| Incentive fees receivable | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Liabilities: | ||||||||
| Accrued compensation | $ | $ | ||||||
| Interest payable | ||||||||
| Note payable | ||||||||
| Bond payable (net of debt issuance costs of $ and $ at September 30, 2021 and December 31, 2020, respectively) | ||||||||
| Operating lease liability | ||||||||
| Deferred tax liability | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 14) | ||||||||
| JMP Group LLC Shareholders' Equity | ||||||||
| Common shares, $ par value, shares authorized at September 30, 2021 and December 31, 2020; shares issued at September 30, 2021 and December 31, 2020; and shares outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury shares at cost, and shares at September 30, 2021 and December 31, 2020, respectively | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total JMP Group LLC shareholders' equity | ||||||||
| Non-controlling interest | ( | ) | ||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
| (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.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| Revenues |
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| Investment banking |
$ | $ | $ | $ | ||||||||||||
| Brokerage |
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| Asset management fees |
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| Principal transactions |
( |
) | ( |
) | ||||||||||||
| Net dividend income |
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| Other income |
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| Non-interest revenues |
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| Interest income |
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| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net interest income |
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| Gain on forgiveness, repurchase or early retirement of debt |
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| Total net revenues |
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| Non-interest expenses |
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| Compensation and benefits |
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| Administration |
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| Brokerage, clearing and exchange fees |
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| Travel and business development |
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| Managed deal expenses |
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| Communications and technology |
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| Occupancy |
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| Professional fees |
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| Depreciation |
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| Other |
( |
) | ||||||||||||||
| Total non-interest expenses |
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| Net income (loss) before income taxes |
( |
) | ( |
) | ||||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | ||||||||||||
| Net income (loss) |
( |
) | ( |
) | ||||||||||||
| Less: Net income (loss) attributable to non-controlling interest |
( |
) | ( |
) | ||||||||||||
| Net income (loss) attributable to JMP Group LLC |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Net income (loss) attributable to JMP Group LLC per common share: |
||||||||||||||||
| Basic |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Diluted |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Weighted average common shares outstanding: |
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| Basic |
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| Diluted |
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See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||
| Other comprehensive income: | ||||||||||||
| Net unrealized losses on available-for-sale securities, during the period, net of income tax benefit of ($), ($), ($) and ($) | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||
| Less: Reclassification adjustments for net losses on available-for-sale securities, net of income tax provision of $, $, $ and $ | ||||||||||||
| Net other comprehensive income, net of income tax (benefit) and provision of ($), $, $ and ($) | ( | ) | ||||||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||
| Comprehensive income (loss) attributable to JMP Group LLC | $ | $ | ( | ) | $ | $ | ( | ) | ||||
See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
(In thousands)
| JMP Group LLC's Equity |
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| Common Shares |
Treasury |
Additional Paid-In |
Accumulated |
Accumulated Other Comprehensive |
Non-controlling |
Total |
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| Shares |
Amount |
Shares |
Capital |
Deficit |
Income (Loss) |
Interest |
Equity |
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| Balance, December 31, 2020 |
$ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||
| Net income |
- | |||||||||||||||||||||
| Additional paid-in capital |
- | |||||||||||||||||||||
| Purchases of shares of common shares for treasury |
- | ( |
) | ( |
) | |||||||||||||||||
| Reissuance of shares of common shares from treasury |
- | |||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||
| Balance, March 31, 2021 |
( |
) | ( |
) | ( |
) | ||||||||||||||||
| Net income |
- | |||||||||||||||||||||
| Additional paid-in capital |
- | ( |
) | |||||||||||||||||||
| Distributions and distribution equivalents paid to shareholders |
- | ( |
) | ( |
) | |||||||||||||||||
| Purchases of shares of common shares for treasury |
- | ( |
) | ( |
) | |||||||||||||||||
| Reissuance of shares of common shares from treasury |
- | |||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||
| Balance, June 30, 2021 |
( |
) | ( |
) | ||||||||||||||||||
| Net income |
- | |||||||||||||||||||||
| Additional paid-in capital |
- | ( |
) | |||||||||||||||||||
| Distributions and distribution equivalents paid to shareholders |
- | ( |
) | ( |
) | |||||||||||||||||
| Purchases of shares of common shares for treasury |
- | ( |
) | ( |
) | |||||||||||||||||
| Reissuance of shares of common shares from treasury |
- | |||||||||||||||||||||
| Other comprehensive income |
- | ( |
) | ( |
) | |||||||||||||||||
| Balance, September 30, 2021 |
( |
) | ( |
) | ( |
) | ||||||||||||||||
| JMP Group LLC's Equity |
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| Common Shares |
Treasury |
Additional Paid-In |
Accumulated |
Accumulated Other Comprehensive |
Non-controlling |
Total |
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| Shares |
Amount |
Shares |
Capital |
Deficit |
Income (Loss) |
Interest |
Equity |
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| Balance, December 31, 2019 |
$ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||
| Net income (loss) |
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Additional paid-in capital - share-based compensation |
- | |||||||||||||||||||||||||||||||
| Purchases of shares of common shares for treasury |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Reissuance of shares of common shares from treasury |
- | ( |
) | |||||||||||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||||||||||
| Balance, March 31, 2020 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Net income (loss) |
- | ( |
) | |||||||||||||||||||||||||||||
| Additional paid-in capital - share-based compensation |
- | |||||||||||||||||||||||||||||||
| Purchases of shares of common shares for treasury |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Reissuance of shares of common shares from treasury |
- | |||||||||||||||||||||||||||||||
| Distribution to non-controlling interest holders |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||||||||||
| Balance, June 30, 2020 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Net income (loss) |
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Additional paid-in capital - share-based compensation |
- | |||||||||||||||||||||||||||||||
| Purchases of shares of common shares for treasury |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Reissuance of shares of common shares from treasury |
||||||||||||||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||||||||||
| Balance, September 30, 2020 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Nine Months Ended September 30, |
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| 2021 |
2020 |
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| Cash flows from operating activities: |
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| Net income (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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| Gain on forgiveness, repurchase or early retirement of debt |
( |
) | ( |
) | ||||
| Change in other investments: |
||||||||
| Income from investments in equity method investees |
( |
) | ( |
) | ||||
| Gain on other investments |
( |
) | ( |
) | ||||
| Depreciation and amortization |
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| Share-based compensation expense |
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| Distributions of investment income from equity method investments |
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| Other, net |
( |
) | ||||||
| Net change in operating assets and liabilities: |
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| (Increase) decrease in interest receivable |
( |
) | ||||||
| Increase in receivables |
( |
) | ( |
) | ||||
| Decrease in marketable securities |
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| Increase in other assets |
( |
) | ( |
) | ||||
| Decrease in marketable securities sold, but not yet purchased |
( |
) | ||||||
| (Decrease) increase in interest payable |
( |
) | ||||||
| Increase (decrease) in accrued compensation |
( |
) | ||||||
| Increase in other liabilities |
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| Net cash provided by (used in) operating activities |
( |
) | ||||||
| Cash flows from investing activities: |
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| Purchases of fixed assets |
( |
) | ( |
) | ||||
| Purchases of other investments |
( |
) | ( |
) | ||||
| Sales or distributions from other investments |
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| Distributions from equity method investments |
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| Sale, payoff and principal receipts on loans held for investment |
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| Net cash provided by investing activities |
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See accompanying notes to consolidated financial statements.
JMP Group LLC
Consolidated Statements of Cash Flows - (Continued)
(Unaudited)
(In thousands)
| Nine Months Ended September 30, |
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| 2021 |
2020 |
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| Cash flows from financing activities: |
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| Proceeds from drawdowns on line of credit and other borrowings |
||||||||
| Repayment of note payable (line of credit) |
( |
) | ||||||
| Redemption/Repurchase of bonds payable |
( |
) | ( |
) | ||||
| Distributions to non-controlling interest shareholders |
( |
) | ( |
) | ||||
| Employee taxes paid on shares withheld for tax-withholding purposes |
( |
) | ( |
) | ||||
| Net cash (used in) provided by financing activities |
( |
) | ||||||
| Net increase in cash, cash equivalents, and restricted cash |
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| Cash, cash equivalents and restricted cash, beginning of period |
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| Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
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| Cash paid during the period for interest |
$ | $ | ||||||
| Cash paid (received) during the period for taxes, net of refunds |
$ | $ | ( |
) | ||||
| Non-cash investing and financing activities: |
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| Reissuance of common shares from treasury related to vesting of restricted share units |
$ | $ | ||||||
| Forgiveness of debt |
$ | $ | ||||||
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
September 30, 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 are wholly-owned subsidiaries. HCAP Advisors became a wholly-owned subsidiary on April 1, 2021. 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 provided investment advisory services to Harvest Capital Credit Corporation (“HCC”), a publicly-traded business development company, until HCC was acquired by Portman Ridge Finance Corporation on June 9, 2021, as further described below under “Recent Transactions”. 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 June 9, 2021, HCC and Portman Ridge Finance Corporation (“PTMN”) closed a merger transaction pursuant to which HCC merged 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. In connection with the merger, the Company received aggregate consideration totaling $
During the second quarter, the Company received a notice of optional redemption from JMP Credit Advisors CLO III(R) LTD (“CLO III”) upon which CLO III was liquidated. As subordinated noteholders of CLO III, the Company received equity distributions from the optional redemption of $
In June 2021, the Company sold its existing
On July 30, 2021, the Company received a $
On September 8, 2021, JMP Group LLC, a Delaware limited liability company (“JMP”, or the “Company”), Citizens Financial Group, Inc., a Delaware corporation (“Citizens”), and Jolt Acquisition LLC, a Delaware limited liability company and direct, wholly owned subsidiary of Citizens (“Merger Subsidiary”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, Merger Subsidiary will merge with and into JMP, whereupon the separate existence of Merger Subsidiary will cease, and the Company will be the surviving corporation as a direct wholly owned subsidiary of Citizens (the “Merger”).
Pursuant to the Merger Agreement, each outstanding common share of JMP will be converted into the right to receive cash consideration of $
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 September 30, 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 Company’s significant accounting policies.
For the nine months ended September 30, 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.
4. Fair Value Measurements
The following tables provide fair value information related to the Company’s financial instruments at September 30, 2021 and December 31, 2020:
| September 30, 2021 | ||||||||||||||||||||
| (In thousands) | Carrying Value | Fair Value | ||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Restricted cash and deposits | ||||||||||||||||||||
| Marketable securities owned | ||||||||||||||||||||
| Equity investments | ||||||||||||||||||||
| Other investments measured at net asset value (1) | ||||||||||||||||||||
| Loans held for sale (2) | ||||||||||||||||||||
| Long term receivable (2) | ||||||||||||||||||||
| Total assets: | $ | $ | $ | $ | $ | |||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Notes payable | $ | $ | $ | $ | ||||||||||||||||
| Bond payable | ||||||||||||||||||||
| Total liabilities: | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| (In thousands) | Carrying Value | Fair Value | ||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Restricted cash and deposits | ||||||||||||||||||||
| Marketable securities owned | ||||||||||||||||||||
| Equity investments | ||||||||||||||||||||
| Other investments measured at net asset value (1) | ||||||||||||||||||||
| Loans held for sale (2) | ||||||||||||||||||||
| Loans held for investment, net of allowance for loan losses | ||||||||||||||||||||
| Total assets: | $ | $ | $ | $ | $ | |||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Notes payable | $ | $ | $ | $ | $ | |||||||||||||||
| Bond payable | ||||||||||||||||||||
| Total liabilities: | $ | $ | $ | $ | $ | |||||||||||||||
| (1) | In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The carrying value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the 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. |
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, 2021 and December 31, 2020:
| (In thousands) | September 30, 2021 | |||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Marketable securities owned | $ | $ | $ | $ | $ | |||||||||||||||
| Other investments: | ||||||||||||||||||||
| Equity investments | ||||||||||||||||||||
| Investments in private equity, real estate and credit funds, measured at net asset value (1) | ||||||||||||||||||||
| Long term receivable (2) | ||||||||||||||||||||
| Total assets: | $ | $ | $ | $ | $ | |||||||||||||||
| (In thousands) | December 31, 2020 | |||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Marketable securities owned | $ | $ | $ | $ | $ | |||||||||||||||
| Other investments: | ||||||||||||||||||||
| Equity investments | ||||||||||||||||||||
| Investments in private equity, real estate and credit funds, measured at net asset value (1) | ||||||||||||||||||||
| Total other investments | ||||||||||||||||||||
| Total assets: | $ | $ | $ | $ | $ | |||||||||||||||
| (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. | |
| (2) | Included in Other Assets on the Consolidated Statements of Financial Condition. |
As of September 30, 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 $
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 $
The Company’s Level 2 assets held in other investments as of September 30, 2021 and December 31, 2020 consist of investments in publicly traded stocks discounted for trading restrictions.
As of September 30, 2021 and December 31, 2020, the Company also owned securities in one and two, respectively, 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.
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 nine months ended September 30, 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 | Long Term Receivable | Total | ||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ||||||||||||
| Investment distributions | ( | ) | ( | ) | ( | ) | ||||||||||
| Accrued interest | ||||||||||||||||
| Realized/Unrealized losses on investments, recognized in earnings | ( | ) | ( | ) | ( | ) | ||||||||||
| Unrealized gains on investments, recognized in OCI | ||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ||||||||||||
| Investment distributions | ( | ) | ( | ) | ( | ) | ||||||||||
| Accrued interest | ||||||||||||||||
| Realized/Unrealized losses on investments, recognized in earnings | ( | ) | ( | ) | ||||||||||||
| Unrealized gains on investments, recognized in OCI | ||||||||||||||||
| Addition | ||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||
| Investment distributions | ( | ) | ( | ) | ( | ) | ||||||||||
| Accrued interest | ||||||||||||||||
| Realized/Unrealized losses on investments, recognized in earnings | ( | ) | ( | ) | ||||||||||||
| Unrealized gains on investments, recognized in OCI | ( | ) | ( | ) | ||||||||||||
| Balance as of September 30, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||
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, 2021, the fair value of the Company’s investment in CLO debt securities declined due to the expected proceeds on the sale of this investment.
The Company’s Level 3 asset in long term receivable consist of a payment stream from a sale of its equity investment. The fair value of the long term receivable is determined using the net present value of discounted cash flows. The significant unobservable inputs used in the fair value measurement of this long term receivable is presented in the Significant Unobservable Inputs table below. For this long term receivable, the Company elected the fair value option.
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, 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 | September 30, 2021 | December 31, 2020 | September 30, 2021 | December 31, 2020 | |||||||||||||||
| CLO debt securities | Discounted cash flows | Discount rate | (N/A) | $ | $ | |||||||||||||||
| Default rate | (N/A) | |||||||||||||||||||
| Severity rate | (N/A) | |||||||||||||||||||
| Prepayment rate | (N/A) | |||||||||||||||||||
| Collateral liquidation price | (N/A) | |||||||||||||||||||
| Market | Sales Proceeds | (N/A) | (N/A) | $ | $ | |||||||||||||||
| Equity investment | Discounted cash flows | Credit factor | (N/A) | $ | $ | |||||||||||||||
| Discount rate | (N/A) | |||||||||||||||||||
| Market | EBITDA multiple | (N/A) | $ | $ | ||||||||||||||||
| Long Term Receivable | Discounted cash flows | Discount rate | % | (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 million as of September 30, 2021 and December 31, 2020.
5. Available-for-Sale Securities
The following table summarizes available-for-sale securities in an unrealized position as of September 30, 2021 and December 31, 2020:
| September 30, 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 |
$ | $ | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||||
The following table summarizes the fair value and amortized cost of the available-for-sale securities by contractual maturity as of September 30, 2021 and December 31, 2020:
| September 30, 2021 |
December 31, 2020 |
|||||||||||||||
| (In thousands) |
Available-for-Sale |
Available-for-Sale |
||||||||||||||
| Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
|||||||||||||
| Less than 5 years |
$ | $ | $ | |||||||||||||
| 5-10 years |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
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 $
With the liquidation of CLO III, on August 4, 2021, the Company entered into a Ninth Amendment to its Credit Facility with CNB that restated the agreement to require the Company to maintain a minimum of $
6. Loans
Loans Held for Investment
As of September 30, 2021 and December 31, 2020, the number of loans held for investment was zero and two, respectively. 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 September 30, 2021 and December 31, 2020. A summary of the activity in the allowance for loan losses for the nine months ended September 30, 2021 and the year ended December 31, 2020 is as follows:
| Nine Months Ended | Year Ended | |||||||
| (In thousands) | September 30, 2021 | December 31, 2020 | ||||||
| Balance, at beginning of the period | $ | $ | ||||||
| Provision for loan losses | ( | ) | ||||||
| Charge off | ||||||||
| 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 September 30, 2021 and December 31, 2020, none of the recorded investment amount of loans issued were individually evaluated for impairment.
During the nine months ended September 30, 2021, the Company did record any impairment. During the year ended December 31, 2020, the Company recorded $
The Company had troubled debt restructurings during the three months ended September 30, 2021 and the year ended December 31, 2020, respectively.
7. Debt
Bond Payable
| (In thousands) | September 30, 2021 | December 31, 2020 | ||||||
| % Senior Notes due 2027 (1) | $ | $ | ||||||
| % Senior Notes due 2029 | ||||||||
| Total outstanding principal | $ | $ | ||||||
| Less: Debt issuance costs | ( | ) | ( | ) | ||||
| Less: Senior Notes repurchased (2) | ( | ) | ( | ) | ||||
| Total bond payable, net | $ | $ | ||||||
| (1) | In February and June 2021, the Company redeemed $ |
| (2) | In March 2020, the Company repurchased $ |
The
Until they were fully redeemed in September 2021, 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 | |||||||
| September 30, 2021 | December 31, 2020 | |||||||
| $ million, JMP Holding Credit Agreement | $ | $ | ||||||
| Paycheck Protection Program (the "PPP") loan | ||||||||
| Note payable to an affiliate (Note 16) | ||||||||
| Total note payable, lines of credit, and credit facilities | $ | $ | ||||||
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
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 $
With the liquidation of CLO III, on August 4, 2021, the Company entered into a Ninth Amendment to its Credit Facility with CNB that restated the agreement to require the Company to maintain a minimum of $
The Credit Agreement provides a million revolving line of credit (the “Revolver”) through December 31, 2022 bears interest at a rate of LIBOR plus
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 $
As of September 30, 2021, the Borrower had drawn $
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 September 30, 2021 and 2020, the Company was in compliance with the covenants under the Credit Agreement.
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 $
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 $
8. Other Assets and Other Liabilities
At September 30, 2021 and December 31, 2020, other assets and other liabilities consisted of the following:
| (In thousands) |
September 30, 2021 | December 31, 2020 | ||||||
| Accounts receivable |
$ | $ | ||||||
| Prepaid expenses |
||||||||
| Loans held for sale (1) |
||||||||
| Other assets |
||||||||
| Total other assets |
$ | $ | ||||||
| (1) | Loans held for sale are carried at the lower of cost or fair value less cost to sell. |
| (In thousands) |
September 30, 2021 | December 31, 2020 | ||||||
| Accounts payable & accrued liabilities |
$ | $ | ||||||
| Deferred compensation liabilities |
||||||||
| Other liabilities |
||||||||
| Total other liabilities |
$ | $ | ||||||
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
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
The following table summarizes the share-based compensation expense for the three andnine months ended September 30, 2021 and 2020.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (In thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Restricted stock unit awards |
$ | $ | $ | $ | ||||||||||||
| Stock option awards |
||||||||||||||||
| Share-based compensation expense |
$ | $ | $ | $ | ||||||||||||
Share Options
The following table summarizes the share option activity for the nine months ended September 30, 2021:
| Nine Months Ended |
||||||||
| September 30, 2021 |
||||||||
| Shares Subject to Option |
Weighted Average Exercise Price |
|||||||
| Balance, beginning of year |
$ | |||||||
| Granted |
||||||||
| Exercised |
( |
) | $ | |||||
| Forfeited |
||||||||
| Balance, end of period |
$ | |||||||
| Options exercisable at end of period |
$ | |||||||
The following table summarizes the share options outstanding as well as share options vested and exercisable as of September 30, 2021 and 2020:
| September 30, 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 |
||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| September 30, 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 |
||||||||||||||||||||||||||
| $ | $ | $ | - | $ | $ | |||||||||||||||||||||||||||||
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 September 30, 2021 and 2020, there was $
There were
The Company uses the Black-Scholes option-pricing model or other quantitative models to calculate the fair value of option awards.
The following table summarizes restricted share unit ("RSU") activity for the nine months ended September 30, 2021:
| Nine Months Ended |
||||||||
| September 30, 2021 |
||||||||
| Restricted Share Units |
Weighted Average Grant Date Fair Value |
|||||||
| Balance, beginning of year |
$ | |||||||
| Granted |
||||||||
| Vested |
( |
) | ||||||
| Forfeited |
( |
) | ||||||
| Balance, end of period |
$ | |||||||
The aggregate fair value of RSUs vested during the nine months ended September 30, 2021 were $
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 nine months ended September 30, 2021, the Company recognized income tax benefits of $
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.
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 (loss) per share for the three and nine months ended September 30, 2021 and 2020 are shown in the tables below:
| (In thousands, except per share data) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) attributable to JMP Group LLC | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||
| Effect of potential dilutive securities: | ||||||||||||||||
| Restricted share units and share options | ||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||
| Net income (loss) per share | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Share options to purchase
RSUs for
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 and nine months ended September 30, 2021 and September 30, 2020, respectively.
| (in thousands) |
Three Months Ended September 30, 2021 |
|||||||||||||||
| Broker -Dealer |
Asset Management |
Eliminations |
Total |
|||||||||||||
| Total revenues from contracts with customers |
||||||||||||||||
| Equity and debt origination |
$ | $ | $ | $ | ||||||||||||
| Strategic advisory and private placements |
||||||||||||||||
| Total investment banking revenues |
||||||||||||||||
| Commissions |
||||||||||||||||
| Research payments |
||||||||||||||||
| Net trading gains |
||||||||||||||||
| Total brokerage revenues |
||||||||||||||||
| Base management fees |
||||||||||||||||
| Incentive management fees |
||||||||||||||||
| Total asset management fees |
||||||||||||||||
| Total revenues from contracts with customers |
$ | $ | $ | $ | ||||||||||||
| (in thousands) |
Three Months Ended September 30, 2020 |
|||||||||||||||
| Broker -Dealer |
Asset Management |
Eliminations |
Total |
|||||||||||||
| Total revenues from contracts with customers |
||||||||||||||||
| Equity and debt origination |
$ | $ | $ | $ | ||||||||||||
| Strategic advisory and private placements |
||||||||||||||||
| Total investment banking revenues |
||||||||||||||||
| Commissions |
||||||||||||||||
| Research payments |
||||||||||||||||
| Net trading losses |
||||||||||||||||
| Total brokerage revenues |
||||||||||||||||
| Base management fees |
( |
) | ||||||||||||||
| Incentive management fees |
||||||||||||||||
| Total asset management fees |
( |
) | ||||||||||||||
| Total revenues from contracts with customers |
$ | $ | $ | ( |
) | $ | ||||||||||
| (in thousands) |
Nine Months Ended September 30, 2021 |
|||||||||||||||
| Broker -Dealer |
Asset Management |
Eliminations |
Total |
|||||||||||||
| Total revenues from contracts with customers |
||||||||||||||||
| Equity and debt origination |
$ | $ | $ | $ | ||||||||||||
| Strategic advisory and private placements |
||||||||||||||||
| Total investment banking revenues |
||||||||||||||||
| Commissions |
||||||||||||||||
| Research payments |
||||||||||||||||
| Net trading gains |
||||||||||||||||
| Total brokerage revenues |
||||||||||||||||
| Base management fees |
||||||||||||||||
| Incentive management fees |
||||||||||||||||
| Total asset management fees |
||||||||||||||||
| Total revenues from contracts with customers |
$ | $ | $ | $ | ||||||||||||
| (in thousands) |
Nine Months Ended September 30, 2020 |
|||||||||||||||
| Broker -Dealer |
Asset Management |
Eliminations |
Total |
|||||||||||||
| Total revenues from contracts with customers |
||||||||||||||||
| Equity and debt origination |
$ | $ | $ | $ | ||||||||||||
| Strategic advisory and private placements |
||||||||||||||||
| Total investment banking revenues |
||||||||||||||||
| Commissions |
||||||||||||||||
| Research payments |
||||||||||||||||
| Net trading losses |
( |
) | ( |
) | ||||||||||||
| Total brokerage revenues |
||||||||||||||||
| Base management fees |
( |
) | ||||||||||||||
| Incentive management fees |
||||||||||||||||
| Total asset management fees |
( |
) | ||||||||||||||
| Total revenues from contracts with customers |
$ | $ | $ | ( |
) | $ | ||||||||||
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 September 30, 2021 and 2020, the Company recorded income tax expense of $
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 nine months ended September 30, 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 September 30, 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 $
Unfunded commitments are agreements to lend to a borrower, provided that all conditions have been met. The Company had material unfunded commitments to lend at both September 30, 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
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 September 30, 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 $
On January 9, 2018, an affiliate purchased a $
On September 19, 2017, the Company made a loan to a registered investment adviser of $
On November 20, 2017, the Company entered into a purchase agreement with the same registered investment advisor for the purchase of
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 September 30, 2021 and December 31, 2020 have subsequently settled with no resulting material liability to the Company. For the nine months ended September 30, 2021 and 2020, the Company had no material loss due to counterparty failure, and had no obligations outstanding under the indemnification arrangement as of September 30, 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. The Company had no material unfunded commitments to lend to a borrower as of September 30, 2021 and December 31, 2020.
19. Business Segments
The Company’s business results are categorized into the following 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
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 September 30, 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 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Brokerage |
|||||||||||||||||||||||||||||||||||||
| Asset management related fees |
( |
) | (a) |
||||||||||||||||||||||||||||||||||
| Principal transactions |
( |
) | (b) |
||||||||||||||||||||||||||||||||||
| Other income |
(a) |
||||||||||||||||||||||||||||||||||||
| Net interest income |
( |
) | (c) |
||||||||||||||||||||||||||||||||||
| Gain (loss) on repurchase, reissuance or early retirement of debt |
( |
) | (d) |
||||||||||||||||||||||||||||||||||
| Net dividend income |
|||||||||||||||||||||||||||||||||||||
| Total net revenues |
( |
) | |||||||||||||||||||||||||||||||||||
| Non-interest expenses |
( |
) | (e) |
||||||||||||||||||||||||||||||||||
| Operating income (loss) before taxes |
( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | (f) |
||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest |
(a),(c),(e) |
||||||||||||||||||||||||||||||||||||
| Operating net income (loss) |
$ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | (g) |
$ | |||||||||||||||||||||||
| As of September 30, 2021 |
||||||||||||||||||||||||||||||||||||
| (In thousands) |
Broker-Dealer |
Asset Management |
Corporate Costs |
Eliminations |
Total Segments |
Adjustments |
Consolidated GAAP |
|||||||||||||||||||||||||||||
| Asset Management Fee Income |
Investment Income |
Total Asset Management |
||||||||||||||||||||||||||||||||||
| Segment assets |
$ | $ | $ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||||
| (a) |
Total segment asset management-related fees include income from fee sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds, which are reported as other income under GAAP. In addition, total segment asset management-related fees exclude base management fees and incentive fees attributable to non-controlling interest. |
| (b) | Total segment principal transaction revenues exclude certain unrealized mark-to-market gains or losses, including those related to impairment of CLO debt securities and the Company's investment in Harvest Capital Credit Corporation, as well as unrealized losses derived from depreciation and amortization of real estate investment properties. |
| (c) | Total segment net dividend income and net interest income exclude those attributable to non-controlling interests. |
| (d) | Total segment gain/(loss) repurchase/early retirement of debt excludes losses on write offs of debt issuance costs related to early retirement or repurchase of debt. |
| (e) | Total segments non-interest expenses exclude compensation expense recognized under GAAP related to equity awards and expenses attributable to non-controlling interests. |
| (f) | Total segment income tax (benefit) assumes a combined federal, state and local income tax rate of |
| (g) | Operating net income (loss) is reconciled to GAAP net income (loss) attributable to JMP Group LLC. |
| Three Months Ended September 30, 2020 |
|||||||||||||||||||||||||||||||||||||
| (In thousands) |
Broker-Dealer |
Asset Management |
Corporate Costs |
Eliminations |
Total Segments |
Adjustments |
Consolidated GAAP |
||||||||||||||||||||||||||||||
| Asset Management Fee Income |
Investment Income |
Total Asset Management |
|||||||||||||||||||||||||||||||||||
| Revenues |
|||||||||||||||||||||||||||||||||||||
| Investment banking |
$ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Brokerage |
|||||||||||||||||||||||||||||||||||||
| Asset management related fees |
( |
) | ( |
) | (a) |
||||||||||||||||||||||||||||||||
| Principal transactions |
( |
) | (b) |
( |
) | ||||||||||||||||||||||||||||||||
| Net dividend income |
( |
) | (c ) |
||||||||||||||||||||||||||||||||||
| Other income |
(a) |
||||||||||||||||||||||||||||||||||||
| Net interest income |
( |
) | (c ) |
||||||||||||||||||||||||||||||||||
| Gain on repurchase, reissuance or early retirement of debt |
(d ) |
||||||||||||||||||||||||||||||||||||
| Total net revenues |
( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Non-interest expenses |
( |
) | (e ) |
||||||||||||||||||||||||||||||||||
| Operating income (loss) before taxes |
( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | (f ) |
( |
) | ||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest |
( |
) | (a), (c ), (e ) |
( |
) | ||||||||||||||||||||||||||||||||
| Operating net income (loss) |
$ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | (g ) |
$ | ( |
) | |||||||||||||||||||||
| As of September 30, 2020 |
||||||||||||||||||||||||||||||||||||
| (In thousands) |
Broker-Dealer |
Asset Management |
Corporate Costs |
Eliminations |
Total Segments |
Adjustments |
Consolidated GAAP |
|||||||||||||||||||||||||||||
| Asset Management Fee Income |
Investment Income |
Total Asset Management |
||||||||||||||||||||||||||||||||||
| Segment assets |
$ | $ | $ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||||
| (a) |
Total segment asset management-related fees include income from fee sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds, which are reported as other income under GAAP. In addition, total segment asset management-related fees exclude base management fees and incentive fees attributable to non-controlling interest. |
| (b) | Total segment principal transaction revenues exclude certain unrealized mark-to-market gains or losses, including those related to impairment of CLO debt securities and the Company's investment in Harvest Capital Credit Corporation, as well as unrealized losses derived from depreciation and amortization of real estate investment properties. |
| (c) | Total segment net dividend income and net interest income exclude those attributable to non-controlling interests. |
| (d) | Total segment gain/(loss) repurchase/early retirement of debt excludes losses on write offs of debt issuance costs related to early retirement or repurchase of debt. |
| (e) | Total segments non-interest expenses exclude compensation expense recognized under GAAP related to equity awards and expenses attributable to non-controlling interests. |
| (f) | Total segment income tax (benefit) assumes a combined federal, state and local income tax rate of |
| (g) | Operating net income (loss) is reconciled to GAAP net income (loss) attributable to JMP Group LLC. |
| Nine Months Ended September 30, 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 |
$ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Brokerage |
|||||||||||||||||||||||||||||||||||||
| Asset management related fees |
( |
) | ( |
) | (a) |
||||||||||||||||||||||||||||||||
| Principal transactions |
( |
) | (b) |
||||||||||||||||||||||||||||||||||
| Other income |
(a) |
||||||||||||||||||||||||||||||||||||
| Net interest income |
( |
) | (c) |
||||||||||||||||||||||||||||||||||
| Gain (loss) on repurchase, reissuance or early retirement of debt |
( |
) | (d) |
||||||||||||||||||||||||||||||||||
| Net dividend income |
|||||||||||||||||||||||||||||||||||||
| Total net revenues |
( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Non-interest expenses |
( |
) | ( |
) | (e) |
||||||||||||||||||||||||||||||||
| Operating income (loss) before taxes |
( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | (f) |
||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest |
(a),(c),(e) |
||||||||||||||||||||||||||||||||||||
| Operating net income (loss) |
$ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | (g) |
$ | |||||||||||||||||||||||
| (a) |
Total segment asset management-related fees include income from fee sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds, which are reported as other income under GAAP. In addition, total segment asset management-related fees exclude base management fees and incentive fees attributable to non-controlling interest. |
| (b) | Total segment principal transaction revenues exclude certain unrealized mark-to-market gains or losses, including those related to impairment of CLO debt securities and the Company's investment in Harvest Capital Credit Corporation, as well as unrealized losses derived from depreciation and amortization of real estate investment properties. |
| (c) | Total segment net dividend income and net interest income exclude those attributable to non-controlling interests. |
| (d) | Total segment gain/(loss) repurchase/early retirement of debt excludes losses on write offs of debt issuance costs related to early retirement or repurchase of debt. |
| (e) | Total segments non-interest expenses exclude compensation expense recognized under GAAP related to equity awards, one-time charge recorded in connection with severance costs deriving from strategic restructuring and reduction of headcount, and expenses attributable to non-controlling interests. |
| (f) | Total segment income tax (benefit) assumes a combined federal, state and local income tax rate of |
| (g) | Operating net income (loss) is reconciled to GAAP net income (loss) attributable to JMP Group LLC. |
| Nine Months Ended September 30, 2020 |
|||||||||||||||||||||||||||||||||||||
| (In thousands) |
Broker-Dealer |
Asset Management |
Corporate Costs |
Eliminations |
Total Segments |
Adjustments |
Consolidated GAAP |
||||||||||||||||||||||||||||||
| Asset Management Fee Income |
Investment Income |
Total Asset Management |
|||||||||||||||||||||||||||||||||||
| Revenues |
|||||||||||||||||||||||||||||||||||||
| Investment banking |
$ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Brokerage |
|||||||||||||||||||||||||||||||||||||
| Asset management related fees |
( |
) | ( |
) | (a) |
||||||||||||||||||||||||||||||||
| Principal transactions |
( |
) | (b) |
( |
) | ||||||||||||||||||||||||||||||||
| Net dividend income |
( |
) | (c) |
||||||||||||||||||||||||||||||||||
| Other income |
(a) |
||||||||||||||||||||||||||||||||||||
| Net interest income |
( |
) | (c) |
||||||||||||||||||||||||||||||||||
| Gain on repurchase, reissuance or early retirement of debt |
( |
) | (d) |
||||||||||||||||||||||||||||||||||
| Total net revenues |
( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Non-interest expenses |
( |
) | (e) |
||||||||||||||||||||||||||||||||||
| Operating income (loss) before taxes |
( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | ( |
) | (f) |
( |
) | ||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest |
( |
) | (a),(c),(e) |
( |
) | ||||||||||||||||||||||||||||||||
| Operating net income (loss) |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | (g) |
$ | ( |
) | |||||||||||||||||||
| (a) |
Total segment asset management-related fees include income from fee sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds, which are reported as other income under GAAP. In addition, total segment asset management-related fees exclude base management fees and incentive fees attributable to non-controlling interest. |
| (b) | Total segment principal transaction revenues exclude certain unrealized mark-to-market gains or losses, including those related to impairment of CLO debt securities and the Company's investment in Harvest Capital Credit Corporation, as well as unrealized losses derived from depreciation and amortization of real estate investment properties. |
| (c) | Total segment net dividend income and net interest income exclude those attributable to non-controlling interests. |
| (d) | Total segments non-interest expenses exclude compensation expense recognized under GAAP related to equity awards and expenses attributable to non-controlling interests. |
| (e) | Total segment income tax (benefit) assumes a combined federal, state and local income tax rate of |
| (f) | Operating net income (loss) is reconciled to GAAP net income (loss) attributable to JMP Group LLC. |
20. Nonconsolidated Variable Interest Entities
VIEs for which the Company is not the primary beneficiary consists of private equity funds, CLO investments, and other investments in which the Company has an equity ownership interest. The Company's maximum exposure to loss from its non-consolidated VIEs consists of equity investments and receivables as follows:
| (In thousands) |
As of |
|||||||||||||||||||||||||||||||
| September 30, 2021 |
December 31, 2020 |
|||||||||||||||||||||||||||||||
| Financial Statement |
Maximum |
Financial Statement |
Maximum |
|||||||||||||||||||||||||||||
| Carrying Amount |
Exposure to |
Carrying Amount |
Exposure to |
|||||||||||||||||||||||||||||
| Assets |
Liabilities |
Loss |
VIE Assets |
Assets |
Liabilities |
Loss |
VIE Assets |
|||||||||||||||||||||||||
| CLOs |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Fund investments |
||||||||||||||||||||||||||||||||
| Other investments |
||||||||||||||||||||||||||||||||
| Total |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
21. Subsequent Events
On November 4, 2021 the Company announced that its board of directors declared a special cash dividend of $
On November 2, 2021, the company sold its investments in CLO IV and CLO V to a group of buyers for $
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited consolidated financial statements and the related notes included elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the MD&A for the fiscal year ended December 31, 2020 contained in our Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 29, 2021 (the “Annual Report”), as well as the consolidated financial statements and notes contained therein.
Cautionary Statement Regarding Forward-Looking Statements
This MD&A and other sections of this Form 10-Q (the “Quarterly Report”) contain forward looking statements. The Company makes forward-looking statements, as defined by the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and in some cases you can identify these statements by forward-looking words such as “if,” “shall,” “may,” “might,” “will likely result,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “intend,” “goal,” “objective,” “predict,” “potential” or “continue,” the negative of these terms, and other comparable terminology. These forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events that the Company believes to be reasonable. There are or may be important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the historical or future results, level of activity, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption “Risk Factors” in our Annual Report. In preparing this MD&A, the Company presumes that readers have access to and have read the MD&A in our Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. The Company undertakes no duty to update any of these forward-looking statements after the date of filing of this Quarterly Report to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law.
Overview
JMP Group LLC, together with its subsidiaries (collectively, the “Company”, “we”, or “us”), is a diversified capital markets firm headquartered in San Francisco, California. We have a diversified business model with a focus on small and middle-market companies and provide:
| • |
investment banking services, including corporate finance, mergers and acquisitions and other strategic advisory services, to corporate clients; |
| • |
sales and trading and related securities brokerage services to institutional investors; |
| • |
equity research coverage of three target industries; |
| • |
asset management products and services to institutional investors, high net-worth individuals and for our own account; and |
| • |
management of collateralized loan obligations (through March 19, 2019) and a specialty finance company. |
Operating Results
A summary of the Company’s operating results for the three and nine months ended September 30, 2021 and 2020, is set forth below.
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands, except per share amounts) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Total net revenues |
$ | 77,785 | $ | 26,624 | $ | 164,770 | $ | 61,884 | ||||||||
| Net income/(loss) attributable to JMP Group |
21,819 | (3,082 | ) | 26,536 | (13,706 | ) | ||||||||||
| Net income/(loss) attributable to JMP Group per share |
1.10 | (0.16 | ) | 1.34 | (0.70 | ) | ||||||||||
| Operating Net Income/(Loss)* |
23,570 | 2,591 | 33,483 | 4,130 | ||||||||||||
| Operating Net Income/(Loss) per share* |
1.11 | 0.13 | 1.59 | 0.21 | ||||||||||||
| * | Operating Net Income (Loss) is a non-GAAP measure. See the section titled Operating Net Income (Non-GAAP Financial Measure) for more information about this non-GAAP measure, including a reconciliation to net income (loss). |
Recent Developments
On January 30, 2020, the spread of novel coronavirus (“COVID-19”) was declared a Public Health Emergency of International Concern by the World Health Organization (“WHO”). Subsequently, on March 11, 2020, WHO characterized the COVID-19 outbreak as a pandemic. In March 2020, the U.S. equities market saw sharp declines and extreme volatility in reaction to the COVID-19 pandemic.
In the second quarter of 2020, unprecedented fiscal and monetary stimuli by the U.S. government spurred a sharp recovery in U.S. equity prices. The U.S. equities market continued to recover from the impact of the COVID-19 pandemic during the second half of 2020. The Company's equity capital markets and brokerage revenues directly benefited from the improved capital market condition.
We continue to closely monitor the status of the COVID-19 pandemic and its impact on our business, the economy and capital markets globally. An economic recession could have a material adverse effect on our business, financial condition, results of operations, or cash flows. While we are optimistic that the equity market could remain active through year-end, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our business in the remainder of 2021 and beyond.
On July 30, 2021, the Company received a $23.8 million distribution from Workspace Property Trust LP (“Workspace”) that recently completed a dividend recapitalization. The Company records its equity interest in Workspace using equity method accounting and currently holds its interest at zero.
On September 8, 2021, JMP Group LLC, a Delaware limited liability company (“JMP”, or the “Company”), Citizens Financial Group, Inc., a Delaware corporation (“Citizens”), and Jolt Acquisition LLC, a Delaware limited liability company and direct, wholly owned subsidiary of Citizens (“Merger Subsidiary”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, Merger Subsidiary will merge with and into JMP, whereupon the separate existence of Merger Subsidiary will cease, and the Company will be the surviving corporation as a direct wholly owned subsidiary of Citizens (the “Merger”).
Pursuant to the Merger Agreement, each outstanding common share of JMP will be converted into the right to receive cash consideration of $7.50 (the “Merger Consideration”), or approximately $149 million in cash. The transaction is targeted to close in the fourth quarter of 2021, subject to approval by the shareholders of JMP, receipt of required regulatory approvals, and satisfaction of other customary closing conditions.
Results of Operations
The following table sets forth our results of operations for the three and nine months ended September 30, 2021 and 2020, and is not necessarily indicative of the results to be expected for any future period.
| (In thousands) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
Three Month Change From 2020 to 2021 |
Nine Month Change From 2020 to 2021 |
||||||||||||||||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
$ |
% |
$ |
% |
|||||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||||||||||
| Investment banking |
$ | 39,916 | $ | 20,874 | $ | 105,198 | $ | 57,094 | $ | 19,042 | 91.2 | % | $ | 48,104 | 84.3 | % | ||||||||||||||||
| Brokerage |
4,128 | 4,176 | 13,424 | 14,008 | (48 | ) | -1.1 | % | (584 | ) | -4.2 | % | ||||||||||||||||||||
| Asset management fees |
8,803 | 2,911 | 22,073 | 6,339 | 5,892 | 202.4 | % | 15,734 | 248.2 | % | ||||||||||||||||||||||
| Principal transactions |
18,275 | (2,737 | ) | 15,015 | (20,337 | ) | 21,012 | -767.7 | % | 35,352 | -173.8 | % | ||||||||||||||||||||
| Net dividend income |
9 | 4 | 224 | 241 | 5 | 125.0 | % | (17 | ) | -7.1 | % | |||||||||||||||||||||
| Other income |
2,900 | 841 | 4,843 | 2,688 | 2,059 | 244.8 | % | 2,155 | 80.2 | % | ||||||||||||||||||||||
| Non-interest revenues |
74,031 | 26,069 | 160,777 | 60,033 | 47,962 | 184.0 | % | 100,744 | 167.8 | % | ||||||||||||||||||||||
| Interest income |
1,761 | 2,287 | 5,616 | 6,391 | (526 | ) | -23.0 | % | (775 | ) | -12.1 | % | ||||||||||||||||||||
| Interest expense |
(1,060 | ) | (1,732 | ) | (4,117 | ) | (5,237 | ) | 672 | -38.8 | % | 1,120 | -21.4 | % | ||||||||||||||||||
| Net interest income |
701 | 555 | 1,499 | 1,154 | 146 | 26.3 | % | 345 | 29.9 | % | ||||||||||||||||||||||
| (Loss) gain on repurchase, reissuance, or early retirement of debt |
3,053 | - | 2,494 | 697 | 3,053 | -100.0 | % | 1,797 | 257.8 | % | ||||||||||||||||||||||
| Total net revenues |
77,785 | 26,624 | 164,770 | 61,884 | 51,161 | 192.2 | % | 102,886 | 166.3 | % | ||||||||||||||||||||||
| Non-interest expenses |
||||||||||||||||||||||||||||||||
| Compensation and benefits |
38,314 | 23,502 | 103,405 | 62,101 | 14,812 | 63.0 | % | 41,304 | 66.5 | % | ||||||||||||||||||||||
| Administration |
2,364 | 1,408 | 5,796 | 4,697 | 956 | 67.9 | % | 1,099 | 23.4 | % | ||||||||||||||||||||||
| Brokerage, clearing and exchange fees |
701 | 620 | 2,025 | 1,901 | 81 | 13.1 | % | 124 | 6.5 | % | ||||||||||||||||||||||
| Travel and business development |
383 | 65 | 665 | 1,041 | 318 | 489.2 | % | (376 | ) | -36.1 | % | |||||||||||||||||||||
| Managed deal expenses |
925 | 990 | 3,677 | 2,528 | (65 | ) | -6.6 | % | 1,149 | 45.5 | % | |||||||||||||||||||||
| Communications and technology |
1,133 | 1,072 | 3,400 | 3,286 | 61 | 5.7 | % | 114 | 3.5 | % | ||||||||||||||||||||||
| Occupancy |
1,160 | 1,194 | 3,531 | 3,587 | (34 | ) | -2.8 | % | (56 | ) | -1.6 | % | ||||||||||||||||||||
| Professional fees |
2,949 | 776 | 5,170 | 2,397 | 2,173 | 280.0 | % | 2,773 | 115.7 | % | ||||||||||||||||||||||
| Depreciation |
261 | 278 | 801 | 1,223 | (17 | ) | -6.1 | % | (422 | ) | -34.5 | % | ||||||||||||||||||||
| Other (loss) |
1,579 | (8 | ) | 1,787 | 201 | 1,587 | -19837.5 | % | 1,586 | 789.1 | % | |||||||||||||||||||||
| Total non-interest expenses |
49,769 | 29,897 | 130,257 | 82,962 | 19,872 | 66.5 | % | 47,295 | 57.0 | % | ||||||||||||||||||||||
| Net income (loss) before income taxes |
28,016 | (3,273 | ) | 34,513 | (21,078 | ) | 31,289 | -956.0 | % | 55,591 | -263.7 | % | ||||||||||||||||||||
| Income tax expense (benefit) |
6,181 | (128 | ) | 7,867 | (7,191 | ) | 6,309 | -4928.9 | % | 15,058 | -209.4 | % | ||||||||||||||||||||
| Net income (loss) |
21,835 | (3,145 | ) | 26,646 | (13,887 | ) | 24,980 | -794.3 | % | 40,533 | -291.9 | % | ||||||||||||||||||||
| Less: Net income (loss) attributable to non-controlling interest |
16 | (63 | ) | 110 | (181 | ) | 79 | -125.4 | % | 291 | -160.8 | % | ||||||||||||||||||||
| Net income (loss) attributable to JMP Group LLC |
$ | 21,819 | $ | (3,082 | ) | $ | 26,536 | $ | (13,706 | ) | $ | 24,901 | -807.9 | % | $ | 40,242 | -293.6 | % | ||||||||||||||
Management uses Operating Net Income as a key, non-GAAP metric when evaluating the performance of JMP Group LLC’s core business strategy and ongoing operations, as management believes that this metric appropriately illustrates the operating results of JMP Group LLC’s core operations and business activities. Operating Net Income is derived from our segment reported results and is the measure of segment profitability on an after-tax basis used by management to evaluate our performance. This non-GAAP measure is presented to enhance investors’ overall understanding of the Company’s current financial performance. Additionally, management believes that Operating Net Income is a useful measure because it allows for a better evaluation of the performance of JMP Group LLC’s ongoing business and facilitates a meaningful comparison of the Company’s results in a given period to those in prior and future periods.
However, Operating Net Income should not be considered a substitute for results that are presented in a manner consistent with GAAP. A limitation of the non-GAAP financial measures presented is that, unless otherwise indicated, the adjustments concern gains, losses or expenses that JMP Group LLC generally expects to continue to recognize, and the adjustment of these items should not always be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring. Therefore, management believes that both JMP Group LLC’s GAAP measures of its financial performance and the respective non-GAAP measures should be considered together. Operating Net Income may not be comparable to a similarly titled measure presented by other companies.
Operating Net Income is a non-GAAP financial measure that adjusts the Company’s GAAP net income as follows:
| (i) |
reverses compensation expense recognized under GAAP related to equity awards; |
|
| (ii) |
recognizes 100% of the cost of deferred compensation in the period for which such compensation was awarded, instead of recognizing such cost over the vesting period as required under GAAP, in order to match compensation expense with the actual period upon which the compensation was based; |
|
| (iii) |
reverses amortization expense related to an intangible asset resulting from the repurchase of a portion of the equity of CLO III prior to 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 warrant positions; |
|
| (vi) |
reverses impairment of CLO debt securities recognized in principal transaction revenues, as the Company believes that the forecasted reduction in future cash flows will be mitigated by a change in the interest rate environment and that distributions will be larger than currently projected; | |
| (vii) |
reverses the one-time transaction costs related to the refinancing or repurchase of the debt; |
|
| (viii) |
includes a combined federal, state and local income tax rate of 26% at the consolidated taxable parent company, JMP Group LLC; |
|
| (ix) |
removes any non-controlling interest in consolidated but less than wholly owned subsidiaries; and |
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 September 30, 2021 |
||||||||||||||||||||||||||||
| (In thousands) |
Broker-Dealer |
Asset Management |
Corporate Costs |
Eliminations |
Total Segments |
|||||||||||||||||||||||
| Asset Management Fee Income |
Investment Income |
Total Asset Management |
||||||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||||||
| Investment banking |
$ | 39,916 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 39,916 | ||||||||||||||
| Brokerage |
4,128 | - | - | - | - | - | 4,128 | |||||||||||||||||||||
| Asset management related fees |
807 | 9,634 | 1,221 | 10,855 | - | - | 11,662 | |||||||||||||||||||||
| Principal transactions |
909 | - | 21,020 | 21,020 | - | - | 21,929 | |||||||||||||||||||||
| Net interest income |
- | - | 726 | 726 | - | - | 726 | |||||||||||||||||||||
| Gain (loss) on repurchase, reissuance or early retirement of debt |
3,848 | - | - | - | - | - | 3,848 | |||||||||||||||||||||
| Net dividend income |
- | - | 9 | 9 | - | - | 9 | |||||||||||||||||||||
| Adjusted net revenues |
49,608 | 9,634 | 22,976 | 32,610 | - | - | 82,218 | |||||||||||||||||||||
| Non-interest expenses |
38,279 | 6,435 | 2,484 | 8,919 | 3,169 | - | 50,367 | |||||||||||||||||||||
| Operating pre-tax net income (loss) |
11,329 | 3,199 | 20,492 | 23,691 | (3,169 | ) | - | 31,851 | ||||||||||||||||||||
| Income tax expense (benefit) |
2,946 | 831 | 5,328 | 6,159 | (824 | ) | - | 8,281 | ||||||||||||||||||||
| Operating net income (loss) |
$ | 8,383 | $ | 2,368 | $ | 15,164 | $ | 17,532 | $ | (2,345 | ) | $ | - | $ | 23,570 | |||||||||||||
| Three Months Ended September 30, 2020 |
||||||||||||||||||||||||||||
| (In thousands) |
Broker-Dealer |
Asset Management |
Corporate Costs |
Eliminations |
Total Segments |
|||||||||||||||||||||||
| Asset Management Fee Income |
Investment Income |
Total Asset Management |
||||||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||||||
| Investment banking |
$ | 20,874 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 20,874 | ||||||||||||||
| Brokerage |
4,176 | - | - | - | - | - | 4,176 | |||||||||||||||||||||
| Asset management related fees |
8 | 3,101 | 380 | 3,481 | - | (37 | ) | 3,452 | ||||||||||||||||||||
| Principal transactions |
188 | - | 954 | 954 | - | - | 1,142 | |||||||||||||||||||||
| Net dividend income |
- | - | 42 | 42 | - | - | 42 | |||||||||||||||||||||
| Net interest income |
- | - | 581 | 581 | - | - | 581 | |||||||||||||||||||||
| Adjusted net revenues |
25,246 | 3,101 | 1,957 | 5,058 | - | (37 | ) | 30,267 | ||||||||||||||||||||
| Non-interest expenses |
21,916 | 2,891 | 350 | 3,241 | 2,342 | (37 | ) | 27,462 | ||||||||||||||||||||
| Operating pre-tax net income (loss) |
3,330 | 210 | 1,607 | 1,817 | (2,342 | ) | - | 2,805 | ||||||||||||||||||||
| Income tax expense (benefit) |
866 | 54 | 418 | 472 | (609 | ) | - | 729 | ||||||||||||||||||||
| Operating net income (loss) |
$ | 2,464 | $ | 156 | $ | 1,189 | $ | 1,345 | $ | (1,733 | ) | $ | - | $ | 2,076 | |||||||||||||
| Nine Months Ended September 30, 2021 |
||||||||||||||||||||||||||||
| (In thousands) |
Broker-Dealer |
Asset Management |
Corporate Costs |
Eliminations |
Total Segments |
|||||||||||||||||||||||
| Asset Management Fee Income |
Investment Income |
Total Asset Management |
||||||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||||||
| Investment banking |
$ | 105,198 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 105,198 | ||||||||||||||
| Brokerage |
13,424 | - | - | - | - | - | 13,424 | |||||||||||||||||||||
| Asset management related fees |
921 | 23,436 | 2,064 | 25,500 | - | (50 | ) | 26,371 | ||||||||||||||||||||
| Principal transactions |
632 | - | 25,216 | 25,216 | - | - | 25,848 | |||||||||||||||||||||
| Net interest income |
- | - | 1,574 | 1,574 | - | - | 1,574 | |||||||||||||||||||||
| Gain (loss) on repurchase, reissuance or early retirement of debt |
3,848 | - | - | - | - | - | 3,848 | |||||||||||||||||||||
| Net dividend income |
- | - | 224 | 224 | - | - | 224 | |||||||||||||||||||||
| Adjusted net revenues |
124,023 | 23,436 | 29,078 | 52,514 | - | (50 | ) | 176,487 | ||||||||||||||||||||
| Non-interest expenses |
102,557 | 17,582 | 3,267 | 20,849 | 7,884 | (50 | ) | 131,240 | ||||||||||||||||||||
| Operating pre-tax net income (loss) |
21,466 | 5,854 | 25,811 | 31,665 | (7,884 | ) | - | 45,247 | ||||||||||||||||||||
| Income tax expense (benefit) |
5,581 | 1,522 | 6,746 | 8,268 | (2,085 | ) | - | 11,764 | ||||||||||||||||||||
| Operating net income (loss) |
$ | 15,885 | $ | 4,332 | $ | 19,065 | $ | 23,397 | $ | (5,799 | ) | $ | - | $ | 33,483 | |||||||||||||
| Nine Months Ended September 30, 2020 |
||||||||||||||||||||||||||||
| (In thousands) |
Broker-Dealer |
Asset Management |
Corporate Costs |
Eliminations |
Total Segments |
|||||||||||||||||||||||
| Asset Management Fee Income |
Investment Income |
Total Asset Management |
||||||||||||||||||||||||||
| Revenues |
||||||||||||||||||||||||||||
| Investment banking |
$ | 57,094 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 57,094 | ||||||||||||||
| Brokerage |
14,008 | - | - | - | - | - | 14,008 | |||||||||||||||||||||
| Asset management related fees |
167 | 6,945 | 1,092 | 8,037 | - | (124 | ) | 8,080 | ||||||||||||||||||||
| Principal transactions |
675 | - | 2,815 | 2,815 | - | - | 3,490 | |||||||||||||||||||||
| Net dividend income |
- | - | 347 | 347 | - | - | 347 | |||||||||||||||||||||
| Net interest income |
- | - | 1,231 | 1,231 | - | - | 1,231 | |||||||||||||||||||||
| Gain on repurchase, reissuance or early retirement of debt |
- | - | 786 | 786 | - | - | 786 | |||||||||||||||||||||
| Adjusted net revenues |
71,944 | 6,945 | 6,271 | 13,216 | - | (124 | ) | 85,036 | ||||||||||||||||||||
| Non-interest expenses |
65,162 | 7,397 | 804 | 8,201 | 6,216 | (124 | ) | 79,455 | ||||||||||||||||||||
| Operating pre-tax net income (loss) |
6,782 | (452 | ) | 5,467 | 5,015 | (6,216 | ) | - | 5,581 | |||||||||||||||||||
| Income tax expense (benefit) |
1,755 | (119 | ) | 1,430 | 1,311 | (1,615 | ) | - | 1,451 | |||||||||||||||||||
| Operating net income (loss) |
$ | 5,027 | $ | (333 | ) | $ | 4,037 | $ | 3,704 | $ | (4,601 | ) | $ | - | $ | 4,130 | ||||||||||||
The following table reconciles consolidated net income (loss) attributable to JMP Group LLC to total Operating Net Income (Loss) for the three and nine months ended September 30, 2021 and 2020.
| (In thousands) |
Three Months Ended September 30, |
|||||||
| 2021 |
2020 |
|||||||
| Consolidated net income (loss) attributable to JMP Group LLC |
$ | 21,819 | $ | (3,082 | ) | |||
| Income tax expense (benefit) |
6,181 | (128 | ) | |||||
| Consolidated pre-tax net income (loss) attributable to JMP Group LLC |
$ | 28,000 | $ | (3,210 | ) | |||
| Subtract (addback) |
||||||||
| Share-based awards and deferred compensation |
598 | (71 | ) | |||||
| Early retirement/repurchase of debt |
(795 | ) | - | |||||
| Impairment – CLO equity |
(5,867 | ) | (2,746 | ) | ||||
| Strategic restructuring charge |
- | (2,056 | ) | |||||
| Unrealized gain (loss) – real estate-related depreciation and amortization |
2,212 | (438 | ) | |||||
| Unrealized mark-to-market gain (loss) -strategic equity investments |
1 | (704 | ) | |||||
| Total Consolidation Adjustments and Reconciling Items |
(3,851 | ) | (6,015 | ) | ||||
| Total segments operating pre-tax net income |
$ | 31,851 | $ | 2,805 | ||||
| Subtract (addback) segment income tax expense |
8,281 | 729 | ||||||
| Operating Net Income |
$ | 23,570 | $ | 2,076 | ||||
| (In thousands) |
Nine Months Ended September 30, |
|||||||
| 2021 |
2020 |
|||||||
| Consolidated net income (loss) attributable to JMP Group LLC |
$ | 26,536 | $ | (13,706 | ) | |||
| Income tax expense (benefit) |
7,867 | (7,191 | ) | |||||
| Consolidated pre-tax net income (loss) attributable to JMP Group LLC |
$ | 34,403 | $ | (20,897 | ) | |||
| Subtract (addback) |
||||||||
| Share-based awards and deferred compensation |
1,344 | (487 | ) | |||||
| Early retirement/repurchase of debt |
(1,354 | ) | (89 | ) | ||||
| Impairment – CLO equity |
(14,165 | ) | (17,282 | ) | ||||
| Strategic restructuring charge |
- | (2,056 | ) | |||||
| Unrealized gain (loss) – real estate-related depreciation and amortization |
1,349 | (1,292 | ) | |||||
| Unrealized mark-to-market gain (loss) -strategic equity investments |
1,982 | (5,272 | ) | |||||
| Total Consolidation Adjustments and Reconciling Items |
(10,844 | ) | (26,478 | ) | ||||
| Total segments operating pre-tax net income |
$ | 45,247 | $ | 5,581 | ||||
| Subtract (addback) segment income tax expense |
11,764 | 1,452 | ||||||
| Operating Net Income |
$ | 33,483 | $ | 4,130 | ||||
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
Revenues
Investment Banking
Investment banking revenues, earned in our Broker-Dealer segment, increased $19.0 million, or 91.2%, from $20.9 million for the quarter ended September 30, 2020 to $39.9 million for the same period in 2021. As a percentage of total net revenues after provision for loan losses, investment banking revenues decreased from 78.4% for the quarter ended September 30, 2020 to 51.3% for the quarter ended September 30, 2021. On an operating basis, investment banking revenues were 48.5% and 69.0% for the quarters ended September 30, 2021 and 2020, respectively, as a percentage of adjusted net revenues.
| (Dollars in thousands) |
Three Months Ended September 30, |
Change from 2021 to 2020 |
||||||||||||||||||||||||||
| 2021 |
2020 |
|||||||||||||||||||||||||||
| Count |
Revenues |
Count |
Revenues |
Count |
$ |
% |
||||||||||||||||||||||
| Equity and debt origination |
24 | $ | 22,660 | 29 | $ | 16,152 | (5 | ) | $ | 6,508 | 40.3 | % | ||||||||||||||||
| Strategic advisory and private placements |
10 | 17,256 | 4 | 4,722 | 6 | $ | 12,534 | 265.5 | % | |||||||||||||||||||
| Total |
34 | $ | 39,916 | 33 | $ | 20,874 | 1 | $ | 19,042 | 91.2 | % | |||||||||||||||||
The increase in revenues was driven by a 265.5% increase in Strategic advisory and private placements revenues as the number of transactions in which we acted as a bookrunning manager was 5 in the three months ended September 30, 2021 compared to one for the quarter ended September 30, 2020, in addition to a 40.3% increase in Equity and debt origination revenues. JMP executed 24 and 29 deals for the quarters ended September 30, 2021 and 2020, respectively.
Brokerage Revenues
Brokerage revenues earned in our Broker-Dealer segment decreased $0.05 million from $4.2 million for the quarter ended September 30, 2020 to $4.1 million for the quarter ended September 30, 2021. Brokerage revenues decreased as a percentage of total net revenues, from 15.7% for the quarter ended September 30, 2020 to 5.3% for the quarter ended September 30, 2021. On an operating basis, brokerage revenues were 5.0% and 13.8% for the quarters ended September 30, 2021 and 2020, respectively, as a percentage of adjusted net revenues.
Asset Management Fees
| (In thousands) |
Three Months Ended September 30, |
|||||||
| 2021 |
2020 |
|||||||
| Asset management related fees: |
||||||||
| Fees reported as asset management fees |
$ | 8,803 | $ | 2,911 | ||||
| Fees reported as other income |
2,900 | 841 | ||||||
| Less: Non-controlling interests |
(41 | ) | (300 | ) | ||||
| Total segment asset management related fee revenues |
$ | 11,662 | $ | 3,452 | ||||
Fees reported as asset management fees were $8.8 million and $2.9 million for the quarters ended September 30, 2021 and 2020, respectively. As a percentage of total net revenues, asset management revenues increased from 10.9% for the quarter ended September 30, 2020 to 11.3% for the quarter ended September 30, 2021, predominantly due to an increase in incentive fees earned of $8.2 million.
Total segment asset management-related fees include base management fees and incentive fees from our assets under management, as well as other income from fee-sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds. Total segment asset management-related fee revenues are reconciled to the GAAP measure, total asset management fee revenues, in the table above. We believe that presenting operating asset management-related fees is useful to investors as a means of assessing the performance of our combined asset management activities, including fundraising and other services for third parties. We also believe that asset management-related fee revenue is a more meaningful measure than standalone asset management fees as reported, because asset management-related fee revenues represent the combined impact of the various asset management activities on the Company’s total net revenues.
Total segment asset management related fee revenue increased $8.2 million from $3.5 million for the quarter ended September 30, 2020 to $11.7 million for the quarter ended September 30, 2021. On an operating basis, asset management related fee revenues were 14.2% and 11.4% for the quarters ended September 30, 2021 and 2020, respectively, as a percentage of total net revenues.
| (In thousands) |
Client Assets Under Management at |
|||||||
| September 30, |
December 31, |
|||||||
| 2021 |
2020 |
|||||||
| Client Assets Managed by HCS, JMPAM, and HCAP Advisors (1) |
$ | 625,815 | $ | 659,695 | ||||
| Client Assets Under Management by Sponsored Funds (2) |
3,385,866 | 4,933,913 | ||||||
| JMP Group LLC total client assets under management |
$ | 4,011,681 | $ | 5,593,608 | ||||
| (1) | For HCS, JMPAM, and HCAP Advisors, client assets under management represent the net assets of such funds or the commitment amount. As of September 30, 2021, HCAP Advisors LLC no longer has assets under management. |
|
(2)
|
Sponsored funds are third-party asset managers in which the Company owns an economic interest. As of
September 30, 2021, Sponsored Funds no longer include CLOs and CLO warehouse assets managed by Medalist Partners Corporate Finance.
|
Principal Transactions
Principal transaction revenues increased $21.0 million from a loss of $2.7 million for the quarter ended September 30, 2020 to a gain of $18.3 million for the quarter ended September 30, 2021. This increase was primarily attributable to the $22.9 million gain in connection with the July 2021 Workspace distribution. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were negative 10.3% for the quarter ended September 30, 2020 and 23.5% for the quarter ended September 30, 2021.
Total segment principal transaction revenues increased from a gain of $1.1 million for the quarter ended September 30, 2020 to a gain of $21.9 million for the same period in 2021. Total segment principal transaction revenues are a non-GAAP financial measure that aggregates our segment reported principal transaction revenues across each segment. The principal transaction revenues for both 2021 and 2020 were included in our Investment Income segment. Total segment principal transaction revenues are reconciled to the GAAP measure, total principal transaction revenues, in the table below. See the Operating Net Income section above for additional information on the adjustments made to arrive at the non-GAAP measure and why management believes that this non-GAAP number is useful and important to the users of these financial statements.
| (In thousands) |
Three Months Ended September 30, |
|||||||
| 2021 |
2020 |
|||||||
| Equity and other securities |
$ | (24 | ) | $ | 481 | |||
| Warrants and other investments |
21,685 | 669 | ||||||
| Investment partnerships |
268 | (8 | ) | |||||
| Total segment principal transaction revenues |
21,929 | 1,142 | ||||||
| Operating adjustment addbacks |
(3,654 | ) | (3,879 | ) | ||||
| Total principal transaction revenues |
$ | 18,275 | $ | (2,737 | ) | |||
On an operating basis, as a percentage of adjusted net revenues, principal transaction revenues increased from 3.8% for the quarter ended September 30, 2020 to 26.7% for the quarter ended September 30, 2021.
Net Interest Income/Expense
Net interest income increased $0.1 million from $0.6 million for the quarter ended September 30, 2020 to $0.7 million for the quarter ended September 30, 2021. As a percentage of total net revenues, net interest income was 2.1% for the quarter ended September 30, 2020 and 0.9% for the quarter ended September 30, 2021.
Total segment net interest income increased $0.1 million from $0.6 million for the quarter ended September 30, 2020 to $0.7 million for the quarter ended September 30, 2021. Net interest income is earned in our Investment Income segment. Total segment net interest income reflects the effective yield of the Company's ownership of subordinated notes in CLO III, CLO IV, and CLO V, net of bond interest expense. Total segment net interest income is reconciled to the GAAP measure, total net interest income, in the table above. As a percentage of total adjusted net revenues, net interest income was 0.9% for the quarter ended September 30, 2020 and 0.9% for the quarter ended September 30, 2021.
Expenses
Non-Interest Expenses
Compensation and Benefits
Compensation and benefits, which includes employee payroll, taxes and benefits, performance-based cash bonus and commissions, as well as equity-based compensation to our employees and managing directors, increased $14.8 million, or 63.0%, from $23.5 million for the quarter ended September 30, 2020 to $38.3 million for the quarter ended September 30, 2021.
Compensation and benefits as a percentage of revenues decreased from 88.3% of total net revenues for the quarter ended September 30, 2020 to 47.9% for the quarter ended September 30, 2021.
Administration
Administration expense increased $1.0 million from $1.4 million for the quarter ended September 30, 2020 to $2.4 million for the quarter ended September 30, 2021. As a percentage of total net revenues, administration expense was 3.0% and 5.3% for the quarters ended September 30, 2021 and 2020, respectively.
Travel and Business Development
Travel and business development expense was $0.4 million and $0.1 million for the quarters ended September 30, 2021 and 2020, respectively. As a percentage of total net revenues, travel and business development expense was 0.5% and 0.2% for the quarters ended September 30, 2021 and 2020, respectively.
Communications and Technology
Communications and technology expense was $1.1 million and $1.1 million for the quarters ended September 30, 2021 and 2020. As a percentage of total net revenues, communications and technology expense was 1.4% and 4.0% for the quarters ended September 30, 2021 and 2020, respectively.
Occupancy
Occupancy expenses was $1.2 million for both of the quarters ended September 30, 2021 and 2020, respectively. As a percentage of total net revenues, occupancy expenses were 1.4% and 4.5% for the quarters ended September 30, 2021 and 2020, respectively.
Provision for Income Taxes
On January 1, 2019, the Company elected to be treated as a C corporation for tax purposes, rather than a partnership, going forward.
For GAAP reporting purposes, the Company’s effective tax rate used for the interim periods is based on the estimated full-year income tax rate. The effective tax rate differs from the statutory rate primarily due to the net operating loss carryback that was created in prior year which was subsequently carried back to offset years with taxable income that was derived from a different corporate tax rate.
Segment income tax was $8.3 million expense and $0.7 million expense for the quarters ended September 30, 2021 and 2020, respectively.
For segment reporting purposes, an effective tax rate of 26% was assumed for the three months ended September 30, 2021 and 2020 based on our best estimation of the subsidiary’s average rate of taxation over the long term.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted in response to market conditions related to the coronavirus (COVID-19) pandemic. The CARES Act includes many measures to help companies, including changes that are temporary and non-income based tax laws, some of which were part of the Tax Cuts and Jobs Act (TCJA). 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.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Revenues
Investment Banking
Investment banking revenues, earned in our Broker-Dealer segment, increased $48.1 million, or 84.3%, from $57.1 million for the nine months ended September 30, 2020 to $105.2 million for the same period in 2021. As a percentage of total net revenues after provision for loan losses, investment banking revenues decreased from 92.3% for the nine months ended September 30, 2020 to 63.0% for the nine months ended September 30, 2021. On an operating basis, investment banking revenues were 59.6% and 67.1% for the nine months ended September 30, 2021 and 2020, respectively, as a percentage of adjusted net revenues.
| (Dollars in thousands) |
Nine Months Ended September 30, |
Change from 2021 to 2020 |
||||||||||||||||||||||||||
| 2021 |
2020 |
|||||||||||||||||||||||||||
| Count |
Revenues |
Count |
Revenues |
Count |
$ |
% |
||||||||||||||||||||||
| Equity and debt origination |
99 | $ | 65,275 | 68 | $ | 39,277 | 31 | $ | 25,998 | 66.2 | % | |||||||||||||||||
| Strategic advisory and private placements |
27 | 39,923 | 13 | 17,817 | 14 | $ | 22,106 | 124.1 | % | |||||||||||||||||||
| Total |
126 | $ | 105,198 | 81 | $ | 57,094 | 45 | $ | 48,105 | 84.3 | % | |||||||||||||||||
The increase in revenues was driven by a 66.2% increase in equity and debt origination revenues as JMP executed 99 deals in the nine months endedSeptember 30, 2021 compared to 68 for the same period in 2020, in addition to a 124.1% increase in strategic advisory and private placements revenues. The number of transactions in which we acted as a bookrunning manager was 14 and 3 for the nine months ended September 30, 2021 and 2020, respectively.
Brokerage Revenues
Brokerage revenues earned in our Broker-Dealer segment decreased $0.6 million from $14.0 million for the nine months ended September 30, 2020 to $13.4 million for the nine months ended September 30, 2021. Brokerage revenues decreased as a percentage of total net revenues, from 15.7% for the nine months ended September 30, 2020 to 5.2% for the nine months ended September 30, 2021. On an operating basis, brokerage revenues were 7.6% and 16.5% for the nine months ended September 30, 2021 and 2020, respectively, as a percentage of adjusted net revenues.
Asset Management Fees
| (In thousands) |
Nine Months Ended September 30, |
|||||||
| 2021 |
2020 |
|||||||
| Asset management related fees: |
||||||||
| Fees reported as asset management fees |
$ | 22,073 | $ | 6,339 | ||||
| Fees reported as other income |
224 | 241 | ||||||
| Less: Non-controlling interests in asset management related fee revenues |
545 | 947 | ||||||
| Total segment asset management related fee revenues |
$ | 22,842 | $ | 7,527 | ||||
Fees reported as asset management fees were $22.1 million and $6.3 million for the nine months ended September 30, 2021 and 2020, respectively. As a percentage of total net revenues, asset management revenues increased from 10.2% for the nine months ended September 30, 2020 to 13.2% for the nine months ended September 30, 2021 due to an increase of incentive fees earned of $15.7 million.
Total segment asset management-related fees include base management fees and incentive fees from our assets under management, as well as other income from fee-sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds. Total segment asset management-related fee revenues are reconciled to the GAAP measure, total asset management fee revenues, in the table above. We believe that presenting operating asset management-related fees is useful to investors as a means of assessing the performance of our combined asset management activities, including fundraising and other services for third parties. We also believe that asset management-related fee revenue is a more meaningful measure than standalone asset management fees as reported, because asset management-related fee revenues represent the combined impact of the various asset management activities on the Company’s total net revenues.
Total segment asset management related fee revenue increased $15.3 million from $7.5 million for the nine months ended September 30, 2020 to $22.8 million for the nine months ended September 30, 2021. On an operating basis, asset management related fee revenues were 9.5% and 14.9% for the nine months ended September 30, 2021 and 2020, respectively, as a percentage of total net revenues.
Principal Transactions
Principal transaction revenues increased $35.4 million from a loss of $20.3 million for the nine months ended September 30, 2020 to a gain of $15.0 million for the same period in 2021. This increase was primarily attributable to the $22.9 million gain in connection with the July 2021 Workspace distribution. In addition, JMP incurred $5.9 million fewer CLO debt securities impairment losses for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were negative 32.9% for the nine months ended September 30, 2020 and 9.1% for the nine months ended September 30, 2021.
Total segment principal transaction revenues increased from $3.5 million for the nine months ended September 30, 2020 to $25.8 million for the same period in 2021. Total segment principal transaction revenues are a non-GAAP financial measure that aggregates our segment reported principal transaction revenues across each segment. The principal transaction revenues for both 2021 and 2020 were included in our Investment Income segment. Total segment principal transaction revenues are reconciled to the GAAP measure, total principal transaction revenues, in the table below. See the Operating Net Income section above for additional information on the adjustments made to arrive at the non-GAAP measure and why management believes that this non-GAAP number is useful and important to the users of these financial statements.
| (In thousands) |
Nine Months Ended September 30, |
|||||||
| 2021 |
2020 |
|||||||
| Equity and other securities |
$ | 231 | $ | (10 | ) | |||
| Warrants and other investments |
24,244 | 2,990 | ||||||
| Investment partnerships |
1,373 | 510 | ||||||
| Total segment principal transaction revenues |
25,848 | 3,490 | ||||||
| Operating adjustment addbacks |
(10,833 | ) | (23,827 | ) | ||||
| Total principal transaction revenues |
$ | 15,015 | $ | (20,337 | ) | |||
On an operating basis, as a percentage of adjusted net revenues, principal transaction revenues decreased from 4.1% for the nine months ended September 30, 2020 to 14.6% for the nine months ended September 30, 2021.
Net Interest Income/Expense
Net interest income increased $0.3 million from $1.2 million for the nine months ended September 30, 2020 to $1.5 million for the nine months ended September 30, 2021 As a percentage of total net revenues, net interest income was 1.7% for the nine months ended September 30, 2020 and 0.9% for the nine months ended September 30, 2021.
Total segment net interest income increased $0.3 million from $1.2 million for the nine months ended September 30, 2020 to $1.6 million for the nine months ended September 30, 2021. Net interest income is earned in our Investment Income segment. Total segment net interest income reflects the effective yield of the Company's ownership of subordinated notes in CLO III, CLO IV, and CLO V, net of bond interest expense. Total segment net interest income is reconciled to the GAAP measure, total net interest income, in the table above. As a percentage of total adjusted net revenues, net interest income was 0.9% for the nine months ended September 30, 2020 and 0.9% for the nine months ended September 30, 2021.
Expenses
Non-Interest Expenses
Compensation and Benefits
Compensation and benefits, which includes employee payroll, taxes and benefits, performance-based cash bonus and commissions, as well as equity-based compensation to our employees and managing directors, increased $41.3 million, or 66.5%, from $41.3 million for the nine months ended September 30, 2020 to $62.1 million for the nine months ended September 30, 2021.
Compensation and benefits as a percentage of revenues decreased from 100.4% of total net revenues for the nine months ended September 30, 2020 to 61.9% for the nine months ended September 30, 2021.
Administration
Administration expense increased $1.1 million from $4.7 million for the nine months ended September 30, 2020 to $5.8 million for the nine months ended September 30, 2021. As a percentage of total net revenues, administration expense was 3.5% and 7.6% for the nine months ended September 30, 2021 and 2020, respectively.
Travel and Business Development
Travel and business development expense was $0.7 million and $1.0 million for the nine months ended September 30, 2021 and 2020, respectively. As a percentage of total net revenues, travel and business development expense was 0.4% and 1.7% for the nine months ended September 30, 2021 and 2020, respectively.
Communications and Technology
Communications and technology expense was $3.4 million and $3.3 million for the nine months ended September 30, 2021 and 2020, respectively. As a percentage of total net revenues, communications and technology expense was 2.0% and 5.3% for the nine months ended September 30, 2021 and 2020, respectively.
Occupancy
Occupancy expenses was $3.5 and $3.6 million for the nine months ended September 30, 2021 and 2020, respectively. As a percentage of total net revenues, occupancy expenses were 2.1% and 5.8% for the nine months ended September 30, 2021 and 2020, respectively.
Provision for Income Taxes
On January 1, 2019, the Company elected to be treated as a C corporation for tax purposes, rather than a partnership, going forward.
For GAAP reporting purposes, the Company’s effective tax rate used for the interim periods is based on the estimated full-year income tax rate. The effective tax rate differs from the statutory rate primarily due to the net operating loss carryback that was created in prior year which was subsequently carried back to offset years with taxable income that was derived from a different corporate tax rate.
Segment income tax was $11.8 million expense and $1.5 million expense for the nine months ended September 30, 2021 and 2020, respectively.
For segment reporting purposes, an effective tax rate of 26% was assumed for the nine months ended September 30, 2021 and 2020 based on our best estimation of the subsidiary’s average rate of taxation over the long term.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted in response to market conditions related to the coronavirus (COVID-19) pandemic. The CARES Act includes many measures to help companies, including changes that are temporary and non-income based tax laws, some of which were part of the Tax Cuts and Jobs Act (TCJA). 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.
Summarized Financial Information
JMP Group Inc., a wholly-owned subsidiary of JMP Group LLC, was the primary obligor of the Company's 7.25% Senior Notes due 2027 (the “2027 Senior Notes”) (see Note 7, Debt) that were fully redeemed in September 2021. 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 provided a full and unconditional guarantee of the due and were 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. As of September 30, 2021 this note has been fully redeemed and the presentation of the summarized financial information presenting the information of JMP Group LLC, JMP Investment Holdings LLC and JMP Group Inc. on a combined basis and eliminates intercompany balances is no longer required.
Financial Condition, Liquidity and Capital Resources
In the section that follows, we discuss the significant changes in the components of our balance sheet, cash flows and capital resources and liquidity for the nine months ended September 30, 2021 to demonstrate where our capital is invested and the financial condition of the Company.
Overview
As a result of the ongoing COVID-19 pandemic, we expected certain costs to decline as the underlying activities were restricted by the COVID-19 pandemic, including travel and related expenses. However, the extent to which the COVID-19 pandemic will impact our liquidity in future periods still remains uncertain.
As of September 30, 2021, we had $117.5 million in cash and cash equivalents and $20 million in undrawn borrowing capacity on our revolving line of credit (some of which borrowing capacity may be used for working capital – See the section entitled JMP Holding LLC Credit Agreement with CNB, below). Based on our historical results, management's experience and our current business strategy, we believe that our existing cash resources and available credit will be sufficient to meet anticipated working capital and capital expenditure requirements for at least the next twelve months.
As of September 30, 2021, we had net liquid assets of $104.7 million primarily consisting of cash and cash equivalents, receivable from clearing brokers, marketable securities owned, and investment banking receivables, net of marketable securities sold but not yet purchased and accrued compensation. We have satisfied our capital and liquidity requirements primarily through the issuance of the Senior Notes, draws on a line of credit, and internally generated cash from operations. Most of our financial instruments, other than loans held for investment and certain marketable securities, are recorded at fair value or amounts that approximate fair value.
As of September 30, 2021, our material indebtedness consisted of our then outstanding Senior Notes and borrowing on our revolving line of credit with City National Bank (“CNB”) under the Credit Agreement described below.
Senior Notes
In November 2017, JMP Group Inc. raised $50.0 million from the issuance of 7.25% Senior Notes (“2027 Senior Notes”). The 2027 Senior Notes will mature on November 15, 2027 and may be redeemed in whole or in part at any time or from time to time at JMP Group Inc.’s option on or after November 28, 2020 at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2027 Senior Notes bear interest at a rate of 7.25% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year. Pursuant to the indenture of the 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.
In September 2019, JMP Group LLC raised $36.0 million from the issuance of 6.875% Senior Notes (“2029 Senior Notes”). The 2029 Senior Notes will mature on September 30, 2029 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after September 30, 2021 at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2029 Senior Notes bear interest at a rate of 6.875% per year, payable quarterly on March 30, June 30, September 30, and December 30 of each year.
In March 2020, the Company repurchased $1.4 million and $0.7 million par value of its issued and outstanding 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 has been included in the Consolidated Statements of Operations, gain on repurchase, reissuance or early retirement of debt.
In February and June of 2021, the Company redeemed $10.0 million par value in each month of its issued and outstanding 2027 Senior Notes.
On July 19, 2021, the Company redeemed $15.0 million par value of its issued and outstanding 2027 Senior Notes. The Company recognized a $0.4 million loss on the redemption.
On August 11, 2021, the Company redeemed the remaining of its issued and outstanding 2027 Senior Notes. The Company recognized a $0.4 million loss on the redemption.
JMP Holding LLC Credit Agreement with CNB
JMP Holding LLC (the “Borrower”), a wholly owned subsidiary of the Company, entered into a Second Amended and Restated Credit Agreement dated April 30, 2014 among the Borrower, the lenders from time to time party thereto (the “Lenders”) and CNB, as administrative agent for the Lenders (as amended, the “Credit Agreement”).
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 September 30, 2021, the Borrowing Base exceeded $25 million.
The Credit Agreement provides a $25.0 million revolving line of credit (the “Revolver”) through December 31, 2022 that 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 September 30, 2021, the Borrower had drawn $4.0 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. The Credit Agreement also includes an event of default for a “change of control” that tests, in part, the composition of our ownership and an event of default if three or more of the members of the Company’s executive committee fail to be involved actively on an ongoing basis in the management of the Company or any of its subsidiaries. A violation of any one of these covenants could result in a default under the Credit Agreement, which would permit CNB to terminate our Revolver or Converted Term Loan and require the immediate repayment of any outstanding principal and interest. In addition, our subsidiaries are restricted under the Credit Agreement under certain circumstances from making distributions to us if an event of default has occurred under the Credit Agreement.
As of September 30, 2021 and December 31, 2020, we were in compliance with the loan covenants under the Credit Agreement.
The Borrower’s obligations under the Credit Agreement are guaranteed by all of the Company’s other wholly owned subsidiaries (other than JMP Securities and certain dormant subsidiaries) and are secured by substantially all of its and the guarantors’ assets. In addition, we have entered into a limited recourse pledge agreement with CNB whereby JMP Group LLC granted a lien on the equity interests in JMP Investment Holdings LLC and JMPAM to secure the Borrower’s obligations under the Credit Agreement. 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.
With the liquidation of CLO III, on August 4, 2021, the Company entered into a Ninth Amendment to its Credit Facility with CNB that restated the agreement to require the Company to maintain a minimum of $4.0 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 and Ninth Amendments. See Note 7, Debt, for more information on the Seventh Amendment.
JMP Securities LLC Revolving Note Agreement with CNB
Under a Revolving Note and Cash Subordination Agreement (as amended, the “Revolving Note Agreement”) and related Revolving Note (as amended, the “Revolving Note”), each dated April 8, 2011, JMP Securities holds a $20.0 million revolving line of credit with CNB to be used for regulatory capital purposes in connection with its securities underwriting activities. Advances under the Revolving Note Agreement bear interest at CNB’s announced prime interest rate. The unused portion of the line bears interest at the rate of 0.25% per annum, paid monthly.
On June 29, 2021, JMP Securities entered Amendment Number Twelve to the Revolving Note Agreement. Pursuant to this amendment, the $20.0 million Revolving Note Agreement was extended for one year until June 30, 2022. On June 30, 2022, any existing outstanding amount under the Revolving Note will convert to a term loan maturing the following year.
There was no borrowing on the Revolving Note as of September 30, 2021 and December 31, 2020.
The Revolving Note Agreement contains financial and other covenants. A violation of any one of these covenants could result in a default under the Revolving Note, which would permit CNB to terminate the Revolving Note and require the immediate repayment of any outstanding principal and interest, subject to the terms of the Revolving Note Agreement.
At both September 30, 2021 and December 31, 2020, JMP Securities was in compliance with the loan covenants under the Revolving Note Agreement.
JMP Securities’ obligations under the Revolving Note Agreement are guaranteed by all of the Company’s wholly owned subsidiaries (other than JMP Securities) and are secured by substantially all the guarantors’ assets.
Other JMP Group LLC considerations
On February 24, 2020 the Company launched a self-tender offer (the “2020 Tender Offer”) to repurchase for cash up to 3,000,000 of shares, at $3.25 a share, representing limited liability company interests of the Company, which was terminated on March 19, 2020 as a result of multiple conditions to the 2020 Tender Offer, including share price and market index conditions, not having been satisfied.
During the three months ended September 30, 2021, the Company did not repurchase any of the Company's shares.
On February 19, 2020, the Company suspended its quarterly cash distributions program on outstanding shares.
Upon the securitization of Medalist Partners Corporate Finance CLO VI in February 2020, the Company received $13.7 million in cash from the CLO VI warehouse and recognized a gain of $1.0 million.
We had total restricted cash of $1.3 million comprised primarily of restricted cash at JMP Group Inc. related to the Company’s letters of credit on leasing arrangements.
The timing of bonus compensation payments to our employees may significantly affect our cash position and liquidity from period to period. While our employees and managing directors are generally paid semi-monthly during the year, bonus compensation, which makes up a larger portion of total compensation, is generally paid once a year during the first two months of the following year. In the first two months of 2021, we paid out $44.5 million of cash bonuses for 2020, including employer payroll tax expense. In the first two months of 2020, we paid out $26.9 million of cash bonuses for 2019, including employer payroll tax expense.
Because of the nature of our investment banking and sales and trading businesses, liquidity is important to us. Accordingly, we regularly monitor our liquidity position, including our cash and net capital positions. We believe that our available liquidity and current level of equity capital, combined with the funds anticipated to be provided by our operating activities, will be adequate to meet our liquidity and regulatory capital requirements for at least the next twelve months. If circumstances required it, we could improve our liquidity position by discontinuing repurchases of the Company’s common shares, halting cash distributions on our common shares and reducing cash bonus compensation paid.
JMP Securities, our wholly-owned subsidiary and a registered securities broker-dealer, is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined under the Exchange Act, shall not exceed 15 to 1. JMP Securities had net capital of $58.3 million and $42.3 million, which were $56.0 million and $40.6 million in excess of the required net capital of $2.3 million and $1.7 million, at September 30, 2021 and December 31, 2020, respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was 0.59 to 1 and 0.62 to 1 at September 30, 2021 and December 31, 2020, respectively.
A condensed table of cash flows for the nine months ended September 30, 2021 and 2020 is presented below.
| (Dollars in thousands) |
Nine Months Ended September 30, |
Change from 2020 to 2021 |
||||||||||||||
| 2021 |
2020 |
$ |
% |
|||||||||||||
| Cash flows provided by (used in) operating activities |
$ | 46,141 | $ | (7,351 | ) | 53,492 | -727.7 | % | ||||||||
| Cash flows provided by investing activities |
32,193 | 12,137 | 20,056 | 165.2 | % | |||||||||||
| Cash flows (used in) provided by financing activities |
(52,261 | ) | 2,262 | (54,523 | ) | -2410.4 | % | |||||||||
| Total cash flows |
$ | 26,073 | $ | 7,048 | $ | 19,025 | 269.9 | % | ||||||||
Cash Flows for the Nine Months Ended September 30, 2021
Cash increased by $26.1 million during the nine months ended September 30, 2021 as a result of cash provided by operating activities and investing activities partially offset by cash used in financing activities.
Our operating activities provided $46.1 million of cash from net income of $26.6 million and change in operating assets and liabilities of $37.6 million, partially offset by $18.1 million of non-cash adjustments.
Our investing activities provided $32.2 million of cash primary due to distributions of equity method investments of $24.6 million and $8.6 million of sales and distributions from non-equity method investments, partially offset by $1.9 million of purchases of other investments.
Our financing activities used $52.2 million of cash primarily due to $50 million redemption of bonds payable.
Cash Flows for the Nine Months Ended September 30, 2020
Cash increased by $7.0 million during the nine months ended September 30, 2020 as a result of cash provided by investing activities, partially offset by cash used in operating activities.
Our operating activities used $7.3 million of cash from a net loss of $13.9 million, adjusted for the cash used by operating assets and liabilities of $6.2 million.
Our investing activities provided $12.1 million of cash primarily due to a $14.1 million in sales from non-equity method investments.
Our financing activities provided $2.3 million of cash primarily due to $3.8 million proceeds from PPP loans, partially offset by $1.4 million in repurchase of bonds payable.
Contractual Obligations
As of September 30, 2021, our aggregate minimum future commitment on our leases was$19.7 million.
As of September 30, 2021, $36.0 million of bonds payable were outstanding, of which all carry interest at a rate of 6.875% per annum and is due in 2029. The bonds require quarterly payments of interest. Our remaining contractual obligations have not materially changed from those reported in our Annual Report.
Off-Balance Sheet Arrangements
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 September 30, 2021 and 2020.
We had no material off-balance sheet arrangements as of September 30, 2021. However, through indemnification provisions in our clearing agreements with our clearing brokers, customer activities may expose us to off-balance sheet credit risk, which we seek to mitigate through customer screening and collateral requirements.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and of revenues and expenses during the reporting periods. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. The use of different estimates and assumptions could produce materially different results. For example, if factors such as those described under the caption “Risk Factors” in our Annual Report cause actual events to differ from the assumptions we used in applying the accounting policies, our results of operations, financial condition and liquidity could be adversely affected.
On an ongoing basis, we evaluate our estimates and assumptions, particularly as they relate to accounting policies that we believe are most important to the presentation of our financial condition and results of operations. We regard an accounting estimate or assumption to be most important to the presentation of our financial condition and results of operations where:
| • |
the nature of the estimates or assumptions is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and |
| • |
the impact of the estimates or assumptions on our financial condition or operating performance is material. |
Using the foregoing criteria, we consider the following to be our critical accounting policies:
| ● |
Valuation of Financial Instruments |
| ● |
CLO Debt Securities |
| ● |
Asset Management Investment Partnerships |
| ● |
Legal and Other Contingent Liabilities |
| ● |
Income Taxes |
Our significant accounting policies are described further in the “Critical Accounting Policies and Estimates” section and Note 2 - Summary of Significant Accounting Policies in these financial statements and our consolidated financial statements in our Annual Report.
| Quantitative and Qualitative Disclosures About Market Risk |
Not Applicable.
| Controls and Procedures |
| (a) |
Disclosure Controls and Procedures |
Our management, with the participation of the Chairman and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer (the principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer, as principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period covered by this report, our disclosure controls and procedures are effective.
| (b) |
Changes in Internal Controls Over Financial Reporting |
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Legal Proceedings |
We are involved in a number of judicial, regulatory and arbitration matters arising in connection with our business. The outcome of matters we have been and currently are involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on our results of operations in any future period and a significant judgment could have a material adverse impact on our financial condition, results of operations and cash flows. We may in the future become involved in additional litigation in the ordinary course of our business, including litigation that could be material to our business. Management, after consultation with legal counsel, believes that, except as described below, the currently known actions or threats against us will not result in any material adverse effect on our financial condition, results of operations or cash flows.
| Risk Factors |
In addition to the other information set forth in this report, you should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition, or future results set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 29, 2021.
There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
| Unregistered Sales of Equity Securities and Use of Proceeds |
During the quarter ended September 30, 2021, no purchases of the Company’s shares was made by or on behalf of JMP Group LLC. As of September 30, 2021, there were no shares available to be repurchased as part of publicly announced programs or plans.
| Defaults Upon Senior Securities |
None.
| Mine Safety Disclosures |
Not Applicable.
| Other Information |
None.
| Exhibits |
_________
*Filed herewith
** Furnished, not filed
| JMP Group LLC |
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| By: |
/s/ JOSEPH A. JOLSON |
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| Name: |
Joseph A. Jolson |
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| Title: |
Chairman and Chief Executive Officer |
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| By: |
/s/ RAYMOND S. JACKSON |
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| Name: |
Raymond S. Jackson |
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| Title: |
Chief Financial Officer |
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