ITEM
2.
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Management
’s Discussion and Analysis of Financial Condition and Results of Operations
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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, 2018 contained in our Form 10-K (the “Annual Report”), as well as the consolidated financial statements and notes contained therei
n.
Cautionary Statement Regarding Forward
-
Looking Statements
This MD&A and other sections of this
Form 10-Q (the “Quarterly Report”) contain forward looking statements. We make 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 we believe 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, we presume 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. We undertake 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.
Deconsolidation of the CLOs and JMPCA
On January 17, 2019, the non-call period of JMP Credit Advisors CLO III(R) Ltd. (“CLO III”) expired, which resulted in a change in the entity with the control over the most significant activities of the variable interest entity (“VIE”). The expiration of the non-call period resulted in the Company losing control over the most significant activities of CLO III. The Company deconsolidated CLO III as of January 17, 2019. The Company continues to hold approximately 47% of the outstanding junior subordinated notes of CLO III and the Company accounts for its ownership of the CLO III subordinated notes as an investment in a CLO debt security and will recognize interest income based on the effective yield method. The Company recognized a gain of $1.6 million as revenue from principal transactions on the deconsolidation of CLO III for the six months ended June 30, 2019.
On March 19, 2019, the Company sold a 50.1% equity interest in JMP Credit Advisors LLC ("JMPCA") JMPCA to Medalist Partners LP (“Medalist”), an alternative asset management firm specializing in structured credit and asset-backed lending, and a 4.9% interest to management employees of JMPCA. JMP Holding LLC, a wholly-owned subsidiary of the Company, retained 45.0% of the equity interest in JMPCA. Due to the transaction JMPCA went through a reconsideration event as defined in Accounting Standard Codification (“ASC”) 810,
Consolidation
, and the Company determined that JMPCA is a VIE after the transaction date. The Company determined that we are not the primary beneficiary of JMPCA as we are not the party with the power to direct the most significant activities of JMPCA. As the Company was determined to not be the primary beneficiary, the Company deconsolidated JMPCA as of the date of sale. As the Company still retains 45.0% of the equity interest of JMPCA and has significant influence, the Company has determined that it will account for its retained interest as an equity method investment after the date of deconsolidation, however; the Company has made the election to use the fair value option to account for the investment. The Company received a cash payment of $0.3 million in consideration for the limited liability company interest and recorded a gain of $3.4 million on deconsolidation as revenue from principal transactions. As a result of the transaction, JMPCA has been renamed Medalist Partners Corporate Finance LLC. The transaction agreement also requires Medalist to provide additional capital to purchase an equity interest in CLO VI to finance the acquisition of broadly syndicated corporate loans, which resulted in Medalist related entities purchasing approximately 66% of the outstanding equity interests of JMP Credit Advisors CLO VI Ltd ("CLO VI"). The Company will receive a portion of the subordinated management fees from the CLOs JMPCA manages.
After the sale of JMPCA, the Company concluded that it has lost the ability to direct the most significant activities of the VIEs: JMP Credit Advisors CLO IV Ltd. (“CLO IV”), JMP Credit Advisors CLO V Ltd. (“CLO V”), and JMP Credit Advisors CLO VI Ltd. ("CLO VI") (collectively with CLO III the “CLOs”) and also deconsolidated those CLOs as of March 19, 2019. The Company continues to hold 100% of the junior subordinated notes of CLO IV and CLO V and approximately 33% of the equity interests of CLO VI. The Company owned 100% and 25% of the senior subordinated notes in CLO IV and CLO V, respectively, at the date of deconsolidation. The Company sold all of its senior subordinated notes in CLO IV and CLO V in May 2019. The Company accounts for its ownership of the subordinated notes as a beneficial interest in a debt security and accounts for its equity interests of CLO VI as an equity investment. The Company classifies the junior subordinated notes as available-for-sale securities and classified the senior subordinated notes as trading securities up until their sale. Collectively, the Company recognized a loss on the deconsolidation of CLO IV, CLO V, and CLO VI of $1.8 million and a loss of $0.1 million on the sale of the senior subordinated notes of CLO IV and CLO V for the six months ended June 30, 2019 in revenues from principal transactions.
The Election for JMP Group LLC to be Taxed as a C Corporation
Since January 2015, JMP Group LLC had been a publicly traded partnership and, as such, was taxed as a partnership, and not as a corporation, for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income.” On January 31, 2019, the Company filed an election with the U.S. Internal Revenue Service to be treated as a C corporation for tax purposes, rather than as a partnership, going forward. The election was approved and became retroactively effective as of January 1, 2019. As a partnership, the Company has only paid taxes on a few taxable corporate holding subsidiaries.
An entity taxed as a partnership generally does not incur any U.S. federal income tax liability, and any income, gains, losses or deductions are taken in by the owners of the partnership in computing their U.S. federal income tax liability, regardless of any distributions from the partnership. In contrast, an entity treated as a corporation for U.S. federal income tax purposes generally pays U.S. federal income tax on its taxable income as it is considered a taxable entity. For years beginning after December 31, 2017, the maximum U.S. federal tax rate imposed on the net income of corporations is 21%. This rate may be subject to change in the future. Owners of a corporate entity generally do not incur any U.S. federal income tax liability on any earnings of the corporation unless the corporation makes a distribution of cash or property. Any distributions paid from current or accumulated earnings are treated as dividends, and these "qualifying dividends" are generally taxed at a lower rate than the ordinary income tax rate. Any distributions in excess of current or accumulated earnings are treated as nontaxable returns of capital which reduce the owner's tax basis in the corporation. Any remaining excess is treated as capital gain. For corporate entities, as both the corporation and distributions from the corporation are taxed, there are two levels of potential tax on the income earned.
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:
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•
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investment banking
services, including corporate finance, mergers and acquisitions and other strategic advisory services, to corporate clients;
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•
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sales and trading and related
securities brokerage services to institutional investors;
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•
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equity research
coverage of four target industries;
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•
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asset management products and services to institutional investors, high net-worth individuals and for our own account;
and
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•
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management of collateralized loan obligations
(through March 19, 2019) and a specialty finance company.
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Components of Revenues
We derive revenues primarily from: fees from our investment banking business, net commissions from our sales and trading business, management fees and incentive fees from our asset management business, and interest income earned on collateralized loan obligations we manage. We also generate revenues from principal transactions, interest, dividends and other income.
Investment Banking
We earn investment banking revenues from underwriting securities offerings, arranging private
capital markets transactions and providing advisory services in mergers and acquisitions and other strategic transactions.
Underwriting Revenues
We earn revenues from securities offerings in which we act as an underwriter, such as initial public offerings and follow-on equity offerings. Underwriting revenues include management fees, underwriting fees, selling concessions, and realized and unrealized net gains and losses on equity positions held in inventory for a period of time to facilitate the completion of certain underwritten offerings. We record underwriting revenues, gross of related syndicate expenses, on the trade date which is typically the date of pricing an offering (or the following day). The Company has determined that its performance obligations are completed and the related income is reasonably determinable on the trade date. In syndicated transactions, management estimates our share of transaction-related expenses incurred by the syndicate, and we recognize revenues gross of such expense. On final settlement by the lead manager, typically 90 days from the trade date of the transaction, we adjust these amounts to reflect the actual transaction-related expenses and our resulting underwriting fee. We receive a higher proportion of total fees in underwritten transactions in which we act as a lead manager.
Strategic Advisory Revenues
Our strategic advisory revenues primarily consist of success fees received upon the closing of mergers and acquisitions but also include retainer fees received when we are first engaged to provide advisory services. We also earn fees for related advisory work and other services, such as fairness opinions, valuation analyses, due diligence, and pre-transaction structuring advice. These revenues may be earned for providing services to either the buyer or the seller involved in a transaction. Depending on the nature of the engagement letter and the agreed upon services, customers may simultaneously receive and consume the benefits of services or services may culminate in the delivery of the advisory services at a point in time. The Company evaluates each contract individually and the performance obligations identified to determine if revenue should be recognized ratably over the term of the agreement or at a specific point in time. Any retainer fees received in connection with these agreements are individually evaluated and any unearned fees are deferred for revenue recognition.
Private
Capital Markets and Other
Revenues
We earn fees for private capital markets and other services in connection with transactions that are not underwritten, such as private placements of equity securities, private investments in public equity (“PIPE”) transactions and Rule 144A offerings. We record private placement revenues on the closing date of these transactions. Client reimbursements for costs associated for private placement fees are recorded gross within Investment banking and various expense captions, excluding compensation.
Since our investment banking revenues are generally recognized at the time of completion of a transaction or the services to be performed, these revenues typically vary between periods and may be affected considerably by the timing of the closing of significant transactions.
Brokerage Revenues
Our brokerage revenues include trading commissions paid by customers for purchases or sales of exchange-listed and over-the-counter (“OTC”) equity securities. Commissions resulting from equity securities transactions executed on behalf of customers are recorded on a trade date basis. The Company believes that the performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to/from the customer. Brokerage revenues also include net trading gains and losses that result from market-making activities and from our commitment of capital to facilitate customer transactions. Our brokerage revenues may vary between periods, in part depending on commission rates, trading volumes and our ability to deliver equity research and other value-added services to our clients. The ability to execute trades electronically, through the internet and through other alternative trading systems, has increased pressure on trading commissions and spreads across our industry. We expect this trend toward alternative trading systems and the related pricing pressure in the brokerage business to continue. We are, to some extent, compensated through brokerage commissions for the equity research and other value-added services we deliver to our clients. These “soft dollar” practices have been the subject of discussion among regulators, the investment banking community and our sales and trading clients. In particular, commission sharing arrangements have been adopted by some large institutional investors. In these arrangements, an institutional investor concentrates its trading with fewer “execution” brokers and pays a fixed amount for execution, with a designated amount set aside for payments to other firms for research or other brokerage services. Accordingly, trading volume directed to us by investors that enter into such arrangements may be reduced, or eliminated, but we may be compensated for our research and sales efforts through allocations of the designated amounts. Depending on the extent to which we agree to this practice and depending on our ability to enter into arrangements on terms acceptable to us, this trend would likely impair the revenues and profitability of our brokerage business by negatively affecting both volumes and trading commissions.
Asset Management Fees
We earn asset management fees for managing a family of investment partnerships, including hedge funds, hedge funds of funds, and private equity funds, a real estate fund, a capital debt fund, as well as a publicly traded specialty finance company, HCC. These fees include base management fees and incentive fees. Base management fees are generally determined by the fair value of the assets under management ("AUM") or the aggregate capital commitment and the fee schedule for each fund or account. Incentive fees are based upon the investment performance of the funds or accounts. For most of our funds, incentive fees equate to a percentage of the excess investment return above a specified high-water mark or hurdle rate over a defined period of time. For private equity funds, incentive fees equate to a percentage of the realized gain from the disposition of each portfolio investment in which each investor participates, which we earn after returning contributions by an investor for a portfolio investment. Some of these incentive fees are subject to contingent repayments to investors or clawback and cannot be recognized until it is probable that there will not be a significant reversal of revenue. Any such fees earned are deferred for revenue recognition until the contingency is removed or the Company determines that it is not probable that a significant reversal of revenue will occur. Generally, we do not earn management fees calculated on the basis of average AUM.
As of June 30, 2019 the contractual base management fees earned from each of our investment funds or companies ranged between 1% and 2% of AUM or were between 1% and 2% of aggregate committed capital. The contractual incentive fees were generally 20%, subject to high-water marks, for the hedge funds; 5% to 20%, subject to high-water marks or a performance hurdle rate, for the hedge funds of funds; 20%, subject to high-water marks, for Harvest Growth Capital LLC (“HGC”) and Harvest Growth Capital II LLC (“HGC II”); and 30% for JMP Capital I LLC ("JMP Capital I"). Our asset management revenues are subject to fluctuations due to a variety of factors that are unpredictable, including the overall condition of the economy, the securities markets as a whole and our core sectors. These market and industry conditions can have a material effect on the inflows and outflows of AUM and on the performance of our asset management funds. For example, a significant portion of the performance-based or incentive fee revenues that we recognize are based on the value of securities held in the funds we manage. The value of these securities includes unrealized gains or losses that may change from one period to another.
The Company sold the general partnership interest in the Harvest Small Cap Partners ("HSCP") fund entities to a newly formed entity owned by the portfolio manager of the HSCP funds. The sale closed on December 31, 2018 upon which the Company's investment management contracts with the HSCP funds terminated. As a result, the Company's AUM decreased by $365.7 million on January 1, 2019. As part of the sale, the Company will receive a portion of the management and incentive fees generated by these funds over the next five years, subject to a limit on the total revenue share. The revenue share will be recognized as other income.
On March 19, 2019, the Company sold a 50.1% equity interest in JMPCA to Medalist, an alternative asset management firm specializing in structured credit and asset-backed lending, and a 4.9% interest to management employees of JMPCA. A wholly-owned subsidiary of the Company retains a 45.0% interest in JMPCA. Due to the sale of the majority of the equity interest and the loss of control over JMPCA, the Company deconsolidated JMPCA as of the date of sale and will no longer recognize asset management fees related to the CLOs. As a result of the transaction, JMPCA has been renamed Medalist Partners Corporate Finance LLC.
Prior to the sale of the majority equity interest in JMPCA, the asset management fees for the CLOs
under management during the period consisted only of senior and subordinated base management fees. We recognize base management fees for the CLOs on a monthly basis over the period during which the collateral management services are performed. The base management fees for the CLOs are calculated as a percentage of the average aggregate collateral balances for a specified period. As we consolidate the CLO’s, the management fees earned at JMPCA from the CLOs are eliminated on consolidation in accordance with GAAP. For both the six months ended June 30, 2019 and 2018, the contractual senior and subordinated base management fees earned from CLO III were 0.33% of the average aggregate collateral balance. For both the six months ended June 30, 2019 and 2018, the contractual base and subordinated fees earned from CLO IV were 0.50% of the average aggregate collateral balance. For the six months ended June 30, 2018, the contractual base and subordinated fees earned from CLO V warehouse portfolio were 1.0% of the average equity contributions. For the six months ended June 30, 2019 the contractual base and subordinated fees earned from CLO V were 0.50% of the average aggregate collateral balance. For the six months ended June 30, 2019, the contractual base and subordinated fees earned from CLO VI warehouse portfolio were 1.0% of the average equity contributions.
The redemption provisions of our funds require at least 90 days
’ advance notice. The redemption provisions do not apply to the CLOs.
The following
tables present certain information with respect to the investment funds managed by HCS, JMPAM, HCAP Advisors, CLOs managed by JMPCA (through March 19, 2019), and the Company's client assets under management:
(In thousands)
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Assets Under Management (1) at
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Company's Share of Assets Under Management at
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June 30,
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December 31,
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June 30,
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December 31,
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2019
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2018
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2019
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2018
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Funds Managed by HCS, JMPAM, or HCAP Advisors:
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Hedge Funds:
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|
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Harvest Small Cap Partners (2)
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$
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-
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$
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365,728
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$
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-
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|
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$
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-
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Harvest Agriculture Select (3)
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76,237
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68,591
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|
|
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203
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|
|
|
490
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Private Equity Funds:
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|
|
|
|
|
|
|
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|
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|
|
|
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Harvest Growth Capital LLC
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23,502
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|
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20,189
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|
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1,001
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876
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|
Harvest Growth Capital II LLC
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163,012
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|
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198,782
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3,315
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|
|
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3,823
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Harvest Intrexon Enterprise Fund
|
|
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59,030
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|
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67,729
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362
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|
|
|
415
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JMP Realty Partners I
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39,782
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39,782
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2,832
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2,832
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JMP Realty Partners II
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27,454
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|
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-
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5,129
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|
|
|
-
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Other
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23,793
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|
|
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20,924
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N/A
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|
|
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N/A
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Funds of Funds:
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|
|
|
|
|
|
|
|
|
|
|
|
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JMP Masters Fund (4)
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2,111
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2,371
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4
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5
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Capital or Private Debt Capital:
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|
|
|
|
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|
|
|
|
|
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Harvest Capital Credit Corporation
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127,972
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123,689
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N/A
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|
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N/A
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JMP Capital I
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23,529
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23,529
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2,329
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2,329
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HCS, JMPAM, and HCAP Advisors Totals
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$
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566,422
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$
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931,314
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|
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$
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15,175
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|
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$
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10,770
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|
|
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|
|
|
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|
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|
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CLOs Managed by JMPCA:
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|
|
|
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CLO III (5) (6)
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-
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360,086
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N/A
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|
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N/A
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CLO IV (5) (6)
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|
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-
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450,594
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N/A
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N/A
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CLO V (5) (6)
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-
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400,557
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N/A
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|
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N/A
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CLO VI warehouse (5) (6)
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-
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34,219
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N/A
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N/A
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JMPCA Totals
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$
|
-
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$
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1,245,456
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$
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N/A
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|
$
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N/A
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Assets Under Management by Sponsored Funds: (7)
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|
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|
|
|
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CLOs and CLO warehouse
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$
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1,363,427
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$
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-
|
|
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N/A
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|
|
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N/A
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Other asset management funds
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|
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3,744,621
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3,449
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N/A
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N/A
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Sponsored Funds Totals
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$
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5,108,048
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|
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$
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3,449
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|
|
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N/A
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|
|
|
N/A
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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JMP Group LLC Totals
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$
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5,674,470
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|
|
$
|
2,180,219
|
|
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$
|
15,175
|
|
|
$
|
10,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
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For hedge funds, funds of funds, HGC, HGC II, Harvest Intrexon Enterprise Fund, and Other, assets under management represent the net assets of such funds. For JMP Realty Partners I, JMP Realty Partners II, and JMP Capital I, assets under management represent the commitment amount. For JMP Realty Partners I and JMP Realty Partners II the commitment amount is subject to the management fee calculation. For CLOs, assets under management represent the sum of the aggregate collateral balance and restricted cash to be reinvested in collateral, upon which management fees are earned.
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(2)
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The Company sold the general partnership interest in the HSCP fund entities to a newly formed entity owned by the portfolio manager of the HSCP funds. The sale closed on December 31, 2018 upon which the Company's investment management contracts with the HSCP funds terminated. As part of the sale, the Company will receive contingent revenue generated by these funds over the next five years, subject to a limit on the total contingent revenue.
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(3)
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Harvest Agriculture Select (“HAS”) includes managed accounts in which the Company has neither equity investment nor control. These are included as they follow the respective funds’ strategy and earn fees.
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(4)
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JMP Masters began the process of liquidation on December 31, 2015.
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(5)
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On March 19, 2019 the Company sold a total of 55.0% of the equity interest in JMPCA. Due to the sale of the majority of the equity interest and the loss of control over JMPCA, the Company deconsolidated JMPCA as of the date of sale and will no longer recognize asset management fees related to the CLOs. As part of the sale, the subordinated management fee structure of CLOs III, IV and V were modified so that the Company will receive a portion of the subordinated management fees directly from the CLOs. Such subordinated management fees are recorded as other income.
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(6)
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CLO III, CLO IV, CLO V and CLO VI warehouse were consolidated in the Consolidated Statements of Financial Condition as of December 31, 2018. CLO III, CLO IV, CLO V and CLO VI were deconsolidated during the first quarter of 2019.
|
(7)
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Sponsored funds are asset managers in which the Company owns an economic interest.
|
(In thousands)
|
|
Three Months Ended June 30, 2019
|
|
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Three Months Ended June 30, 2018
|
|
|
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Company's Share of Change in Fair Value
|
|
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Management Fee
|
|
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Incentive Fee
|
|
|
Company's Share of Change in Fair Value
|
|
|
Management Fee
|
|
|
Incentive Fee
|
|
Hedge Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Small Cap Partners (1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(10
|
)
|
|
$
|
1,612
|
|
|
$
|
2,017
|
|
Harvest Agriculture Select (2)
|
|
|
3
|
|
|
|
189
|
|
|
|
-
|
|
|
|
(30
|
)
|
|
|
225
|
|
|
|
-
|
|
Private Equity Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Growth Capital LLC
|
|
|
201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110
|
|
|
|
-
|
|
|
|
-
|
|
Harvest Growth Capital II LLC
|
|
|
331
|
|
|
|
82
|
|
|
|
264
|
|
|
|
383
|
|
|
|
157
|
|
|
|
-
|
|
Harvest Intrexon Enterprise Fund
|
|
|
26
|
|
|
|
178
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
176
|
|
|
|
-
|
|
JMP Realty Partners I
|
|
|
(316
|
)
|
|
|
110
|
|
|
|
479
|
|
|
|
48
|
|
|
|
89
|
|
|
|
-
|
|
JMP Realty Partners II
|
|
|
-
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
1
|
|
Funds of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Masters Fund (3)
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Capital Credit Corporation (4)
|
|
|
N/A
|
|
|
|
895
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
968
|
|
|
|
-
|
|
JMP Capital I
|
|
|
-
|
|
|
|
8
|
|
|
|
103
|
|
|
|
-
|
|
|
|
7
|
|
|
|
96
|
|
CLOs and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO III (5) (6)
|
|
|
N/A
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
320
|
|
|
|
N/A
|
|
CLO IV (5) (6)
|
|
|
N/A
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
570
|
|
|
|
N/A
|
|
CLO V Warehouse (5) (6)
|
|
|
N/A
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
135
|
|
|
|
N/A
|
|
Totals
|
|
$
|
245
|
|
|
$
|
1,508
|
|
|
$
|
846
|
|
|
$
|
497
|
|
|
$
|
4,273
|
|
|
$
|
2,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company sold the general partnership interest in the HSCP fund entities to a newly formed entity owned by the portfolio manager of the HSCP funds. The sale closed on December 31, 2018 upon which the Company's investment management contracts with the HSCP funds terminated. As part of the sale, the Company will receive contingent revenue generated by these funds over the next five years, subject to a limit on the total contingent revenue.
|
(2)
|
HAS includes managed accounts in which the Company has neither equity investment nor control. These are included with the funds, as they follow the respective strategies and earn fees.
|
(3)
|
JMP Masters began the process of liquidation on December 31, 2015.
|
(4)
|
Management fees earned includes administrative services revenue.
|
(5)
|
On March 19, 2019 the Company sold a total of 55.0% of the equity interest in JMPCA. Due to the sale of the majority of the equity interest and the loss of control over JMPCA, the Company deconsolidated JMPCA as of the date of sale and will no longer recognize asset management fees related to the CLOs. As part of the sale, the subordinated management fee structure of CLOs III, IV and V were modified so that the Company will receive a portion of the subordinated management fees directly from the CLOs. Such subordinated management fees are recorded as other income.
|
(6)
|
Management and incentive fees earned from the CLOs and CLO warehouse were consolidated and then eliminated in the consolidation in the Company's Consolidated Statements of Operations. The CLOs and JMPCA were all deconsolidated in the first quarter of 2019.
|
(In thousands)
|
|
Six Months Ended June 30, 2019
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
Company's Share of Change in Fair Value
|
|
|
Management Fee
|
|
|
Incentive Fee
|
|
|
Company's Share of Change in Fair Value
|
|
|
Management Fee
|
|
|
Incentive Fee
|
|
Hedge Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Small Cap Partners (1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13
|
|
|
$
|
3,117
|
|
|
$
|
5,303
|
|
Harvest Agriculture Select (2)
|
|
|
51
|
|
|
|
366
|
|
|
|
-
|
|
|
|
(360
|
)
|
|
|
457
|
|
|
|
-
|
|
Private Equity Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Growth Capital LLC
|
|
|
161
|
|
|
|
-
|
|
|
|
-
|
|
|
|
109
|
|
|
|
-
|
|
|
|
-
|
|
Harvest Growth Capital II LLC
|
|
|
(12
|
)
|
|
|
228
|
|
|
|
264
|
|
|
|
420
|
|
|
|
314
|
|
|
|
-
|
|
Harvest Intrexon Enterprise Fund
|
|
|
(53
|
)
|
|
|
354
|
|
|
|
-
|
|
|
|
(66
|
)
|
|
|
351
|
|
|
|
-
|
|
JMP Realty Partners I
|
|
|
504
|
|
|
|
215
|
|
|
|
479
|
|
|
|
58
|
|
|
|
179
|
|
|
|
-
|
|
JMP Realty Partners II
|
|
|
-
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
80
|
|
Funds of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Masters Fund (3)
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Capital Credit Corporation (4)
|
|
|
N/A
|
|
|
|
1,736
|
|
|
|
6
|
|
|
|
N/A
|
|
|
|
1,981
|
|
|
|
-
|
|
JMP Capital I
|
|
|
-
|
|
|
|
28
|
|
|
|
103
|
|
|
|
-
|
|
|
|
11
|
|
|
|
96
|
|
CLOs and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO III (5) (6)
|
|
|
N/A
|
|
|
|
271
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
590
|
|
|
|
N/A
|
|
CLO IV (5) (6)
|
|
|
N/A
|
|
|
|
482
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1,134
|
|
|
|
N/A
|
|
CLO V and CLO V warehouse (5) (6)
|
|
|
N/A
|
|
|
|
428
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
203
|
|
|
|
N/A
|
|
CLO VI Warehouse (5) (6)
|
|
|
N/A
|
|
|
|
13
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
-
|
|
|
|
N/A
|
|
Totals
|
|
$
|
651
|
|
|
$
|
4,178
|
|
|
$
|
852
|
|
|
$
|
174
|
|
|
$
|
8,368
|
|
|
$
|
5,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company sold the general partnership interest in the HSCP fund entities to a newly formed entity owned by the portfolio manager of the HSCP funds. The sale closed on December 31, 2018 upon which the Company's investment management contracts with the HSCP funds terminated. As part of the sale, the Company will receive contingent revenue generated by these funds over the next five years, subject to a limit on the total contingent revenue.
|
(2)
|
HAS includes managed accounts in which the Company has neither equity investment nor control. These are included with the funds, as they follow the respective strategies and earn fees.
|
(3)
|
JMP Masters began the process of liquidation on December 31, 2015.
|
(4)
|
Management fees earned includes administrative services revenue.
|
(5)
|
On March 19, 2019 the Company sold a total of 55.0% of the equity interest in JMPCA. Due to the sale of the majority of the equity interest and the loss of control over JMPCA, the Company deconsolidated JMPCA as of the date of sale and will no longer recognize asset management fees related to the CLOs. As part of the sale, the subordinated management fee structure of CLOs III, IV and V were modified so that the Company will receive a portion of the subordinated management fees directly from the CLOs. Such subordinated management fees are recorded as other income.
|
(6)
|
Management and incentive fees earned from the CLOs and CLO warehouse were consolidated and then eliminated in the consolidation in the Company's Consolidated Statements of Operations. The CLOs and JMPCA were all deconsolidated in the first quarter of 2019.
|
Principal Transactions
Principal transaction revenues include
net realized and unrealized gains and losses resulting from our principal investments in equity and other securities for our own account as well as equity-linked warrants received from certain investment banking clients and limited partner investments in private funds managed by third parties. Principal transaction revenues also include earnings, or losses, attributable to interests in investment partnerships managed by our asset management subsidiaries, HCS and JMPAM, which are recorded using the fair value option and the net asset value practical expedient, or are accounted for using the equity method of accounting. Revenues also included unrealized gains and losses on investments that elect the fair option and unrealized gains and losses on the deconsolidation of businesses and investments. In addition, our principal transaction revenues include unrealized gains or losses on an investment in an entity that acquires buildings and land for the purpose of holding, managing and selling the properties and also include unrealized gains or losses on the investments in other private companies.
Gain (Loss) on
S
ale
and
P
ayoff of
L
oans
Gain (loss) on sale
and payoff of loans consists of gains and losses from the sale and payoff of loans collateralizing asset-backed securities. Gains are recorded when the proceeds exceed the carrying value of the loan. Gain on sale, payoff and mark-to-market of loans also consists of the lower of cost or market adjustments arising from loans held for sale. Losses are recorded for a loan held for sale when the carrying value exceeds fair value.
Net Dividend Income
Net dividend income
includes dividends from our investments offset by dividend expense resulting from short positions in our principal investment portfolio.
Other Income
Other income includes
revenues from equity method investments, revenues from fee-sharing arrangements with our funds, contingent revenue from a sale of a general partnership, subordinated management fees earned on CLO investments, and fees earned to raise capital for third-party investment partnerships.
Interest Income
Interest income primarily consists of interest income earned on loans collateralizing asset
-backed securities issued, investments in CLO equity tranches, and loans held for investment. Interest income on loans is comprised of the stated coupon as a percentage of the face amount receivable as well as accretion of purchase discounts and deferred fees. Interest income is recorded on an accrual basis, in accordance with the terms of the respective loans, unless such loans are placed on non-accrual status.
On January 17, 2019, the non-call period for CLO III expired and the Company lost the ability to direct the most significant activities of CLO III. As a result, the Company deconsolidated CLO III as of January 17, 2019 and ceased recognizing interest income on loans collateralizing asset-backed securities for CLO III as of the date of sale.
On March 19, 2019, the Company sold a total of 55.0% of the equity interest in JMPCA. Due to the sale of the majority of the equity interest and the loss of control over the CLO IV, CLO V, and the CLO VI warehouse, the Company deconsolidated these entities and ceased recognizing interest income on loans collateralizing asset-backed securities as of the date of sale for CLO IV, CLO V, and CLO VI. After deconsolidation of the CLOs and the CLO VI warehouse, the Company accounted for its ownership of the subordinated notes of the CLOs as beneficial interests in debt securities and recorded interest income on those instruments using the effective-yield method.
Interest Expense
Interest expense primarily consists
of interest expense related to asset-backed securities issued, Senior Notes, lines of credit, and notes payable, as well as the amortization of bond issuance costs. Interest expense on asset-backed securities is the stated coupon payable as a percentage of the principal amount. Interest expense is recorded on an accrual basis, in accordance with the terms of the respective debt instruments. Due to deconsolidation of the CLOs and the CLO VI warehouse in the first quarter of 2019, the Company ceased recording interest expense on asset-backed securities issued as of January 17, 2019 for CLO III and on March 19, 2019, for CLO IV, CLO V, and CLO VI warehouse.
Provision for Loan Losses
Provision for loan losses includes the provision for losses recognized on our loan notes and non-revolving credit agreements at JMP Capital LLC, JMP Investment Holdings LLC, and JMP Group Inc., (collectively loans held for investment) and on loans collateralizing asset-backed securities (“ABS”) in order to record the loans held for investment and ABS at their estimated net realizable value. We maintain an allowance for loan losses that is intended to estimate loan losses inherent in the loans held for investment
’s and the CLO's loan portfolio. A provision for loan losses is charged to expense to establish the allowance for loan losses. The allowance for loan losses is maintained at a level, in the opinion of management, sufficient to offset estimated losses inherent in the loan portfolio as of the date of the financial statements. The appropriateness of the allowance and the allowance components are reviewed quarterly. Our estimate of each allowance component is based on observable information and on market and third-party data that we believe are reflective of the underlying loan losses being estimated. We employ internally developed and third-party estimation tools for measuring credit risk (loan ratings, probability of default, and exposure at default).
A specific reserve is provided for loans that are considered impaired. A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan
’s effective interest rate, the loan’s observable market price, or the fair value of the collateral securing the loan, if the loan is collateral-dependent, depending on the circumstances and our collection strategy. For loans deemed impaired at the date of acquisition, if there is a further decline in expected future cash flows, this reduction is recognized as a specific reserve in accordance with the guidance above. For those loans deemed impaired subsequent to the acquisition date, if the net realizable value is lower than the current carrying value, the carrying value is reduced, and the difference is booked as a provision for loan losses. If the total discount from unpaid principal balance to carrying value is larger than the expected loss at the date of assessment, no provision for loan losses is recognized.
Loans which are deemed to be uncollectible are charged off, and the charged-off amount is deducted from the allowance.
Due to the deconsolidation of the CLOs and the CLO VI warehouse in the first quarter of 2019, the Company ceased recording provisions for loan losses on the loans collateralizing ABS issued and the loans held for investment in the warehouse.
Components of Expenses
We classify our expens
es as compensation and benefits; administration; brokerage, clearing and exchange fees; travel and business development; communications and technology; occupancy; professional fees, depreciation, impairment loss on purchased management contract, and other. A significant portion of our expense base is variable, including compensation and benefits; brokerage, clearing and exchange fees; travel and business development; and communication and technology expenses.
Compensation and Benefits
Compensation and benefits is the largest component of our expenses and includes employees
’ base pay, performance bonuses, sales commissions, related payroll taxes, equity-based compensation, and medical and benefits expenses, as well as expenses for contractors and temporary employees. Our employees receive a substantial portion of their compensation in the form of an individual, performance-based bonus. As is the widespread practice in our industry, we pay bonuses on an annual basis, and for senior professionals these bonuses typically make up a large portion of their total compensation. A portion of the performance-based bonuses paid to certain senior professionals is paid in the form of deferred compensation. Bonus payments may have a greater impact on our cash position and liquidity in the periods in which they are paid than would otherwise be reflected in our Consolidated Statements of Operations. We accrue for the estimated amount of these bonus payments ratably over the applicable service period.
Compensation is accrued with specific ratios of total compensation and benefits to total revenues applied to specific revenue categories, with adjustments made if, in management
’s opinion, such adjustments are necessary and appropriate to maintain competitive compensation levels.
Administration
Administration expense primarily includes the cost of hosted conferences, non-capitalized systems and software expenditures, insurance, business tax (non-income), office supplies, recruiting
, and regulatory fees.
Brokerage, Clearing and Exchange Fees
Brokerage, clearing and exchange fees include the cost of floor and electronic brokerage and execution, securities clearance, and exchange fees. Changes in brokerage, clearing and exchange fees fluctuate largely in line with the volume of our sales and trading activity.
Travel and Business Development
Travel and business development expense is net of expenses reimbursed by clients.
Managed Deal Expenses
Managed deal expenses primarily relate to costs incurred and/or allocated in the execution of investment banking transactions, including reimbursable costs.
Communications and Technology
Communications and technology expense primarily relates to
the cost of communication and connectivity, information processing, and subscriptions to certain market data feeds and services.
Occupancy Expenses
Occupancy costs primarily include payments made under operating leases that are recognized on a straight-line basis over the period of the lease.
Professional Fees
Professional fees primarily relate to legal and accounting professional services.
Depreciation
Depreciation expenses include the straight-line amortization of purchases of certain furniture and fixtures, computer and office equipment, certain software costs, and leasehold improvements to allocate their depreciation amounts over their estimated useful life.
Other Expenses
Other operating expenses primarily include occupancy, depreciation, and CLO administration expense at JMP Investment Holdings
.
Income Taxes
Since January 2015, JMP Group LLC had been a publicly traded partnership and, as such, was taxed as a partnership, and not as a corporation, for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income.” On January 31, 2019, the Company filed an election with the U.S. Internal Revenue Service to be treated as a C corporation for tax purposes, rather than a partnership, going forward. The election was approved and became retroactively effective as of January 1, 2019. As a partnership, the Company has only paid taxes on a few taxable corporate holding subsidiaries.
The Company recognizes deferred tax assets and liabilities in accordance with ASC 740,
Income Taxes
, which 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. Valuation allowances are established when necessary to reduce the deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized.
The Company records uncertain tax positions using a two-step process: (i) the Company determines whether it is more likely than not that each tax position will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more-likely-than not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than fifty percent likely to be realized upon ultimate settlement with the related tax authority
The Company’s policy for recording interest and penalties associated with the tax audits or unrecognized tax benefits, if any, is to record such items as a component of income tax.
Non
-
controlling Interest
Non-controlling interest for the three months ended June 30, 2019 includes the interest of third parties in HCS Strategic Investments LLC ("HCS SI") and HCAP Advisors. Non-controlling interest for the three months ended June 30, 2018 includes the interest of third parties in CLO III, HCS SI, and HCAP Advisors. Non-controlling interest for both the six
months ended June 30, 2019 and 2018 includes the interest of third parties in CLO III (through January 17, 2019), HCS SI, and HCAP Advisors, partially-owned subsidiaries consolidated in our financial statements.
The Company currently manages several asset management funds, which are structured as limited partnerships, and is the general partner of each. The Company assesses whether the partnerships meet the definition of VIEs in accordance with ASC 810-10-15-14
and whether the Company qualifies as the primary beneficiary. Funds determined not to meet the definition of a VIE are considered voting interest entities, for which the rights of the limited partners are evaluated to determine if consolidation is necessary. Such guidance provides that the presumption that the general partner controls the limited partnership may be overcome if the limited partners have substantive kick-out rights.
The Company had determined CLO III to be a variable interest entity and
identified itself as the primary beneficiary, based on its ability to direct activities of CLO III through its subsidiary manager, JMP Credit Advisors, and its equity ownership. As of December 31, 2018 the Company’s ownership of unsecured subordinated notes was 46.7%.
On January 17, 2019, the non-call period for CLO III expired and the Company lost the ability to direct the most significant activities of CLO III. As a result, the Company deconsolidated CLO III as of January 17, 2019 and ceased recognizing any non-controlling interest.
HCAP Advisors was formed on December 18, 2012. HCAP Advisors appointed JMP Holding LLC as its Manager effective May 1, 2013 and began offering investment advisory services. The Company owned a 51.0% equity interest in the entity until April 27, 2018 when the Company purchased an additional 18.4% of HCAP Advisors, equity from a non-controlling interest holder. As of April 27, 2018, the Company owns a 69.4% of equity interest in the entity. The Company was identified as the primary beneficiary, based on the ability to direct activities of HCAP Advisors as the Manager and its equity ownership.
HCS SI was formed on September 27, 2017. The purpose of HCS SI is to purchase, hold, and sell portfolio securities. On November 20, 2017, HCS SI made an investment in an investment advisor to purchase approximately 25.0% of the issued and outstanding equity securities. On January 9, 2018, a debt fund purchased 30% of the investment series in the investment advisor for $0.4 million and the Company's ownership percentage of HCS SI was reduced to 70%.
Results of Operations
The following table sets forth our results of operations for the three
and six months ended June 30, 2019 and 2018, and is not necessarily indicative of the results to be expected for any future period.
(In thousands)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
Three Month Change From 2018 to 2019
|
|
|
Six Month Change From 2018 to 2019
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
17,736
|
|
|
$
|
28,562
|
|
|
$
|
29,615
|
|
|
$
|
49,224
|
|
|
$
|
(10,826
|
)
|
|
|
-37.9
|
%
|
|
$
|
(19,609
|
)
|
|
|
-39.8
|
%
|
Brokerage
|
|
|
4,657
|
|
|
|
5,447
|
|
|
|
9,192
|
|
|
|
10,111
|
|
|
|
(790
|
)
|
|
|
-14.5
|
%
|
|
|
(919
|
)
|
|
|
-9.1
|
%
|
Asset management fees
|
|
|
2,354
|
|
|
|
5,378
|
|
|
|
4,057
|
|
|
|
11,803
|
|
|
|
(3,024
|
)
|
|
|
-56.2
|
%
|
|
|
(7,746
|
)
|
|
|
-65.6
|
%
|
Principal transactions
|
|
|
1,423
|
|
|
|
1,684
|
|
|
|
6,711
|
|
|
|
(1,936
|
)
|
|
|
(261
|
)
|
|
|
-15.5
|
%
|
|
|
8,647
|
|
|
|
446.6
|
%
|
Loss on sale, payoff and mark-to-market of loans
|
|
|
(21
|
)
|
|
|
(150
|
)
|
|
|
(38
|
)
|
|
|
(332
|
)
|
|
|
129
|
|
|
|
86.0
|
%
|
|
|
294
|
|
|
|
88.6
|
%
|
Net dividend income
|
|
|
293
|
|
|
|
319
|
|
|
|
589
|
|
|
|
615
|
|
|
|
(26
|
)
|
|
|
-8.2
|
%
|
|
|
(26
|
)
|
|
|
-4.2
|
%
|
Other income
|
|
|
793
|
|
|
|
311
|
|
|
|
758
|
|
|
|
360
|
|
|
|
482
|
|
|
|
155.0
|
%
|
|
|
398
|
|
|
|
110.6
|
%
|
Non-interest revenues
|
|
|
27,235
|
|
|
|
41,551
|
|
|
|
50,884
|
|
|
|
69,845
|
|
|
|
(14,316
|
)
|
|
|
-34.5
|
%
|
|
|
(18,961
|
)
|
|
|
-27.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,772
|
|
|
|
15,669
|
|
|
|
17,063
|
|
|
|
28,379
|
|
|
|
(12,897
|
)
|
|
|
-82.3
|
%
|
|
|
(11,316
|
)
|
|
|
-39.9
|
%
|
Interest expense
|
|
|
(1,939
|
)
|
|
|
(11,634
|
)
|
|
|
(12,712
|
)
|
|
|
(21,336
|
)
|
|
|
9,695
|
|
|
|
83.3
|
%
|
|
|
8,624
|
|
|
|
40.4
|
%
|
Net interest income
|
|
|
833
|
|
|
|
4,035
|
|
|
|
4,351
|
|
|
|
7,043
|
|
|
|
(3,202
|
)
|
|
|
-79.4
|
%
|
|
|
(2,692
|
)
|
|
|
-38.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on repurchase, reissuance, or early retirement of debt
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
(2,668
|
)
|
|
|
42
|
|
|
|
N/A
|
|
|
|
2,668
|
|
|
|
100.0
|
%
|
Provision for loan losses
|
|
|
-
|
|
|
|
(1,280
|
)
|
|
|
-
|
|
|
|
(2,745
|
)
|
|
|
1,280
|
|
|
|
N/A
|
|
|
|
2,745
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues after provision for loan losses
|
|
|
28,068
|
|
|
|
44,264
|
|
|
|
55,235
|
|
|
|
71,475
|
|
|
|
(16,196
|
)
|
|
|
-36.6
|
%
|
|
|
(16,240
|
)
|
|
|
-22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
19,945
|
|
|
|
29,138
|
|
|
|
37,167
|
|
|
|
53,399
|
|
|
|
(9,193
|
)
|
|
|
-31.5
|
%
|
|
|
(16,232
|
)
|
|
|
-30.4
|
%
|
Administration
|
|
|
2,748
|
|
|
|
2,711
|
|
|
|
4,677
|
|
|
|
4,944
|
|
|
|
37
|
|
|
|
1.4
|
%
|
|
|
(267
|
)
|
|
|
-5.4
|
%
|
Brokerage, clearing and exchange fees
|
|
|
733
|
|
|
|
788
|
|
|
|
1,434
|
|
|
|
1,565
|
|
|
|
(55
|
)
|
|
|
-7.0
|
%
|
|
|
(131
|
)
|
|
|
-8.4
|
%
|
Travel and business development
|
|
|
1,347
|
|
|
|
1,202
|
|
|
|
2,368
|
|
|
|
2,156
|
|
|
|
145
|
|
|
|
12.1
|
%
|
|
|
212
|
|
|
|
9.8
|
%
|
Managed deal expenses
|
|
|
1,334
|
|
|
|
2,348
|
|
|
|
1,867
|
|
|
|
3,914
|
|
|
|
(1,014
|
)
|
|
|
-43.2
|
%
|
|
|
(2,047
|
)
|
|
|
-52.3
|
%
|
Communication and technology
|
|
|
1,127
|
|
|
|
1,047
|
|
|
|
2,180
|
|
|
|
2,109
|
|
|
|
80
|
|
|
|
7.6
|
%
|
|
|
71
|
|
|
|
3.4
|
%
|
Occupancy
|
|
|
1,409
|
|
|
|
1,143
|
|
|
|
2,832
|
|
|
|
2,260
|
|
|
|
266
|
|
|
|
23.3
|
%
|
|
|
572
|
|
|
|
25.3
|
%
|
Professional fees
|
|
|
821
|
|
|
|
1,138
|
|
|
|
2,277
|
|
|
|
3,043
|
|
|
|
(317
|
)
|
|
|
-27.9
|
%
|
|
|
(766
|
)
|
|
|
-25.2
|
%
|
Depreciation
|
|
|
311
|
|
|
|
287
|
|
|
|
608
|
|
|
|
551
|
|
|
|
24
|
|
|
|
8.4
|
%
|
|
|
57
|
|
|
|
10.3
|
%
|
Other
|
|
|
5
|
|
|
|
776
|
|
|
|
500
|
|
|
|
1,163
|
|
|
|
(771
|
)
|
|
|
-99.4
|
%
|
|
|
(663
|
)
|
|
|
-57.0
|
%
|
Total non-interest expenses
|
|
|
29,780
|
|
|
|
40,578
|
|
|
|
55,910
|
|
|
|
75,104
|
|
|
|
(10,798
|
)
|
|
|
-26.6
|
%
|
|
|
(19,194
|
)
|
|
|
-25.6
|
%
|
Income (loss) before income tax expense
|
|
|
(1,712
|
)
|
|
|
3,686
|
|
|
|
(675
|
)
|
|
|
(3,629
|
)
|
|
|
(5,398
|
)
|
|
|
-146.4
|
%
|
|
|
2,954
|
|
|
|
81.4
|
%
|
Income tax expense (benefit)
|
|
|
(517
|
)
|
|
|
4,895
|
|
|
|
(4,619
|
)
|
|
|
(673
|
)
|
|
|
(5,412
|
)
|
|
|
-110.6
|
%
|
|
|
(3,946
|
)
|
|
|
-586.3
|
%
|
Net income (loss)
|
|
|
(1,195
|
)
|
|
|
(1,209
|
)
|
|
|
3,944
|
|
|
|
(2,956
|
)
|
|
|
14
|
|
|
|
1.2
|
%
|
|
|
6,900
|
|
|
|
233.4
|
%
|
Less: Net income (loss) attributable to non-controlling interest
|
|
|
(83
|
)
|
|
|
779
|
|
|
|
(13
|
)
|
|
|
(685
|
)
|
|
|
(862
|
)
|
|
|
-110.7
|
%
|
|
|
672
|
|
|
|
98.1
|
%
|
Net income (loss) attributable to JMP Group LLC
|
|
$
|
(1,112
|
)
|
|
$
|
(1,988
|
)
|
|
$
|
3,957
|
|
|
$
|
(2,271
|
)
|
|
$
|
876
|
|
|
|
44.1
|
%
|
|
|
6,228
|
|
|
|
274.2
|
%
|
Operating Net Income (Non-GAAP Financial Measure)
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 share-based compensation expense recognized under GAAP related to equity awards granted in prior periods, as management generally evaluates performance by considering the full expense of equity awards in the period in which they are granted, even if the expense of such compensation will be recognized in future periods under GAAP;
|
|
(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 the first quarter of 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)
|
excludes general loan loss provisions related to the CLOs prior to the first quarter of 2019;
|
|
(vii)
|
reverses the one-time transaction costs related to the refinancing of the debt;
|
|
(viii)
|
reverses one-time expenses associated with the redemption of debt underlying the CLOs, the redemption of other debt, and the resulting acceleration of the amortization of remaining capitalized issuance costs for each;
|
|
(ix)
|
as of the quarter and year ended June 30, 2019, a combined federal, state and local income tax rate of 26% at the consolidated taxable parent company, JMP Group LLC, while, prior to the quarter and year ended June 30, 2019, a combined federal, state and local income tax rate of 26% at the taxable direct subsidiary of the Company and a tax rate of 0% at the company’s other direct subsidiary, which was a “pass-through entity” for tax purposes.
|
|
(x)
|
presents revenues and expenses on a basis that deconsolidates the CLOs and removes any non-controlling interest in consolidated but less than wholly owned subsidiaries.
|
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 June 30, 2019
|
|
(In thousands)
|
|
Broker-Dealer
|
|
|
Asset Management
|
|
|
Corporate Costs
|
|
|
Eliminations
|
|
|
Total Segments
|
|
|
|
|
|
|
|
Asset Management Fee Income
|
|
|
Investment Income
|
|
|
Total Asset Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
17,736
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,736
|
|
Brokerage
|
|
|
4,657
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,657
|
|
Asset management related fees
|
|
|
6
|
|
|
|
2,536
|
|
|
|
323
|
|
|
|
2,859
|
|
|
|
-
|
|
|
|
(34
|
)
|
|
|
2,831
|
|
Principal transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
1,492
|
|
|
|
1,492
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,492
|
|
Loss on sale, payoff, and mark-to-market of loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
Net dividend income
|
|
|
-
|
|
|
|
-
|
|
|
|
331
|
|
|
|
331
|
|
|
|
-
|
|
|
|
-
|
|
|
|
331
|
|
Net interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
816
|
|
|
|
816
|
|
|
|
-
|
|
|
|
-
|
|
|
|
816
|
|
Adjusted net revenues
|
|
|
22,399
|
|
|
|
2,536
|
|
|
|
2,941
|
|
|
|
5,477
|
|
|
|
-
|
|
|
|
(34
|
)
|
|
|
27,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
23,458
|
|
|
|
2,883
|
|
|
|
495
|
|
|
|
3,378
|
|
|
|
1,982
|
|
|
|
(34
|
)
|
|
|
28,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax net income (loss)
|
|
|
(1,059
|
)
|
|
|
(347
|
)
|
|
|
2,446
|
|
|
|
2,099
|
|
|
|
(1,982
|
)
|
|
|
-
|
|
|
|
(942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
(275
|
)
|
|
|
(90
|
)
|
|
|
635
|
|
|
|
545
|
|
|
|
(515
|
)
|
|
|
-
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)
|
|
$
|
(784
|
)
|
|
$
|
(257
|
)
|
|
$
|
1,811
|
|
|
$
|
1,554
|
|
|
$
|
(1,467
|
)
|
|
$
|
-
|
|
|
$
|
(697
|
)
|
|
|
Three Months Ended June 30, 2018
|
|
(In thousands)
|
|
Broker-Dealer
|
|
|
Asset Management
|
|
|
Corporate Costs
|
|
|
Eliminations
|
|
|
Total Segments
|
|
|
|
|
|
|
|
Asset Management Fee Income
|
|
|
Investment Income
|
|
|
Total Asset Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
28,562
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
28,562
|
|
Brokerage
|
|
|
5,447
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,447
|
|
Asset management related fees
|
|
|
6
|
|
|
|
4,572
|
|
|
|
2,017
|
|
|
|
6,589
|
|
|
|
-
|
|
|
|
(1,168
|
)
|
|
|
5,427
|
|
Principal transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
1,404
|
|
|
|
1,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,404
|
|
Loss on sale, payoff, and mark-to-market of loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(203
|
)
|
|
|
(203
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(203
|
)
|
Net dividend income
|
|
|
-
|
|
|
|
-
|
|
|
|
338
|
|
|
|
338
|
|
|
|
-
|
|
|
|
-
|
|
|
|
338
|
|
Net interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
2,927
|
|
|
|
2,927
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,927
|
|
Loss on repurchase, reissuance, or early retirement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(42
|
)
|
Provision for loan losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(37
|
)
|
|
|
(37
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(37
|
)
|
Adjusted net revenues
|
|
|
34,015
|
|
|
|
4,572
|
|
|
|
6,404
|
|
|
|
10,976
|
|
|
|
-
|
|
|
|
(1,168
|
)
|
|
|
43,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
30,410
|
|
|
|
4,756
|
|
|
|
3,372
|
|
|
|
8,128
|
|
|
|
2,573
|
|
|
|
(1,168
|
)
|
|
|
39,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax net income (loss)
|
|
|
3,605
|
|
|
|
(184
|
)
|
|
|
3,032
|
|
|
|
2,848
|
|
|
|
(2,573
|
)
|
|
|
-
|
|
|
|
3,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
937
|
|
|
|
(48
|
)
|
|
|
(27
|
)
|
|
|
(75
|
)
|
|
|
(366
|
)
|
|
|
-
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)
|
|
$
|
2,668
|
|
|
$
|
(136
|
)
|
|
$
|
3,059
|
|
|
$
|
2,923
|
|
|
$
|
(2,207
|
)
|
|
$
|
-
|
|
|
$
|
3,384
|
|
|
|
Six Months Ended June 30, 2019
|
|
(In thousands)
|
|
Broker-Dealer
|
|
|
Asset Management
|
|
|
Corporate Costs
|
|
|
Eliminations
|
|
|
Total Segments
|
|
|
|
|
|
|
|
Asset Management Fee Income
|
|
|
Investment Income
|
|
|
Total Asset Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
29,615
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29,615
|
|
Brokerage
|
|
|
9,192
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,192
|
|
Asset management related fees
|
|
|
12
|
|
|
|
4,897
|
|
|
|
369
|
|
|
|
5,266
|
|
|
|
-
|
|
|
|
(1,048
|
)
|
|
|
4,230
|
|
Principal transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
6,879
|
|
|
|
6,879
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,879
|
|
Loss on sale, payoff, and mark-to-market of loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(39
|
)
|
|
|
(39
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(39
|
)
|
Net dividend income
|
|
|
-
|
|
|
|
-
|
|
|
|
666
|
|
|
|
666
|
|
|
|
-
|
|
|
|
-
|
|
|
|
666
|
|
Net interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
4,139
|
|
|
|
4,139
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,139
|
|
Adjusted net revenues
|
|
|
38,819
|
|
|
|
4,897
|
|
|
|
12,014
|
|
|
|
16,911
|
|
|
|
-
|
|
|
|
(1,048
|
)
|
|
|
54,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
41,358
|
|
|
|
5,973
|
|
|
|
3,044
|
|
|
|
9,017
|
|
|
|
4,042
|
|
|
|
(1,048
|
)
|
|
|
53,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax net income (loss)
|
|
|
(2,539
|
)
|
|
|
(1,076
|
)
|
|
|
8,970
|
|
|
|
7,894
|
|
|
|
(4,042
|
)
|
|
|
-
|
|
|
|
1,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
(660
|
)
|
|
|
(281
|
)
|
|
|
2,332
|
|
|
|
2,051
|
|
|
|
(1,050
|
)
|
|
|
-
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)
|
|
$
|
(1,879
|
)
|
|
$
|
(795
|
)
|
|
$
|
6,638
|
|
|
$
|
5,843
|
|
|
$
|
(2,992
|
)
|
|
$
|
-
|
|
|
$
|
972
|
|
|
|
Six Months Ended June 30, 2018
|
|
(In thousands)
|
|
Broker-Dealer
|
|
|
Asset Management
|
|
|
Corporate Costs
|
|
|
Eliminations
|
|
|
Total Segments
|
|
|
|
|
|
|
|
Asset Management Fee Income
|
|
|
Investment Income
|
|
|
Total Asset Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
49,223
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
49,225
|
|
Brokerage
|
|
|
10,111
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,111
|
|
Asset management related fees
|
|
|
10
|
|
|
|
8,561
|
|
|
|
5,302
|
|
|
|
13,863
|
|
|
|
-
|
|
|
|
(2,149
|
)
|
|
|
11,724
|
|
Principal transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
121
|
|
|
|
121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121
|
|
Loss on sale, payoff, and mark-to-market of loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(364
|
)
|
|
|
(364
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(364
|
)
|
Net dividend income
|
|
|
-
|
|
|
|
-
|
|
|
|
665
|
|
|
|
665
|
|
|
|
-
|
|
|
|
-
|
|
|
|
665
|
|
Net interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
5,054
|
|
|
|
5,054
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,054
|
|
Loss on repurchase, reissuance, or early retirement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(42
|
)
|
Provision for loan losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(930
|
)
|
|
|
(930
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(930
|
)
|
Adjusted net revenues
|
|
|
59,344
|
|
|
|
8,561
|
|
|
|
9,806
|
|
|
|
18,367
|
|
|
|
-
|
|
|
|
(2,147
|
)
|
|
|
75,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
53,326
|
|
|
|
9,776
|
|
|
|
7,561
|
|
|
|
17,337
|
|
|
|
4,831
|
|
|
|
(2,149
|
)
|
|
|
73,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax net income (loss)
|
|
|
6,018
|
|
|
|
(1,215
|
)
|
|
|
2,245
|
|
|
|
1,030
|
|
|
|
(4,831
|
)
|
|
|
2
|
|
|
|
2,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
1,564
|
|
|
|
(316
|
)
|
|
|
(135
|
)
|
|
|
(451
|
)
|
|
|
(647
|
)
|
|
|
-
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)
|
|
$
|
4,454
|
|
|
$
|
(899
|
)
|
|
$
|
2,380
|
|
|
$
|
1,481
|
|
|
$
|
(4,184
|
)
|
|
$
|
2
|
|
|
$
|
1,753
|
|
The following table
reconciles operating net income (loss) to Total Segments operating pre-tax net income, and also to consolidated pre-tax net income (loss) attributable to JMP Group LLC and to consolidated net income (loss) attributable to JMP Group LLC for the three months and six months ended June 30, 2019 and 2018.
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Consolidated net loss attributable to JMP Group LLC
|
|
$
|
(1,112
|
)
|
|
$
|
(1,988
|
)
|
Income tax expense (benefit)
|
|
|
(517
|
)
|
|
|
4,895
|
|
Consolidated pre-tax net income (loss) attributable to JMP Group LLC
|
|
$
|
(1,629
|
)
|
|
$
|
2,907
|
|
Addback (subtract):
|
|
|
|
|
|
|
|
|
Share-based awards and deferred compensation
|
|
|
(587
|
)
|
|
|
(69
|
)
|
General loan loss provision – CLOs, CLO warehouse
|
|
|
-
|
|
|
|
(1,164
|
)
|
CLO refinancing costs
|
|
|
-
|
|
|
|
10
|
|
Amortization of intangible asset – CLO III
|
|
|
-
|
|
|
|
(69
|
)
|
Unrealized gain (loss) in real estate fund investment – depreciation and amortization
|
|
|
(221
|
)
|
|
|
24
|
|
Unrealized mark-to-market gain on strategic equity investments
|
|
|
121
|
|
|
|
295
|
|
Total consolidation adjustments and reconciling items
|
|
|
(687
|
)
|
|
|
(973
|
)
|
Total segments adjusted operating pre-tax net income (loss)
|
|
$
|
(942
|
)
|
|
$
|
3,880
|
|
|
|
|
|
|
|
|
|
|
Subtract (addback) of segment income tax expense (benefit)
|
|
|
(245
|
)
|
|
|
496
|
|
Operating net income (loss)
|
|
$
|
(697
|
)
|
|
$
|
3,384
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Consolidated net income (loss) attributable to JMP Group LLC
|
|
$
|
3,957
|
|
|
$
|
(2,271
|
)
|
Income tax benefit
|
|
|
(4,619
|
)
|
|
|
(673
|
)
|
Consolidated pre-tax net loss attributable to JMP Group LLC
|
|
$
|
(662
|
)
|
|
$
|
(2,944
|
)
|
Addback (subtract):
|
|
|
|
|
|
|
|
|
Share-based awards and deferred compensation
|
|
|
(1,431
|
)
|
|
|
(213
|
)
|
General loan loss provision – CLOs, CLO warehouse
|
|
|
-
|
|
|
|
(1,493
|
)
|
Early retirement/reissuance
|
|
|
-
|
|
|
|
(1,318
|
)
|
CLO refinancing costs
|
|
|
-
|
|
|
|
(54
|
)
|
Amortization of intangible asset – CLO III
|
|
|
(277
|
)
|
|
|
(138
|
)
|
Unrealized gain (loss) in real estate fund investment – depreciation and amortization
|
|
|
(778
|
)
|
|
|
(1,604
|
)
|
Unrealized mark-to-market (gain) loss on strategic equity investments
|
|
|
511
|
|
|
|
(343
|
)
|
Total consolidation adjustments and reconciling items
|
|
|
(1,975
|
)
|
|
|
(5,163
|
)
|
Total segments adjusted operating pre-tax net income
|
|
$
|
1,313
|
|
|
$
|
2,219
|
|
|
|
|
|
|
|
|
|
|
Subtract of segment income tax expense
|
|
|
341
|
|
|
|
466
|
|
Operating net income
|
|
$
|
972
|
|
|
$
|
1,753
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2019 Compared to Three Months Ended
June 30
, 2018
Overview
Total net revenues after provision for loan losses was $44.3 million for the quarter ended June 30, 2018 and $28.1 million for the same period in 2019.
N
on-interest revenues decreased $14.4 million, or 34.5%, from $41.6 million for the quarter ended June 30, 2018 to $27.2 million in the same period in 2019. This decrease was driven by a $10.8 million decrease in investment banking revenues and a $3.0 million decrease in asset management revenues.
Net interest income decreased $3.2 million, or 79.4%, from $4.0 million for the quarter ended June 30, 2018 to $0.8 million for the quarter ended June 30, 2019. The decrease in net interest income was due to the deconsolidation of the CLOs during the three month period ended March 31, 2019.
Provision for loan losses decreased
$1.3 million from a provision of $1.3 million for the quarter ended June 30, 2018 to zero for the quarter ended June 30, 2019. The decrease in provision of loan losses was due to the deconsolidation of the CLOs during the three months ended March 31, 2019.
Total non-interest expense
s decreased $10.8 million, or 26.6%, from $40.6 million for the quarter ended June 30, 2018 to $29.8 million for the quarter ended June 30, 2019, primarily due to a $9.2 million decrease in compensation and benefits, a $1.0 million decrease in managed deal expenses, and a $0.8 million decrease in other expenses.
Net income attributable to non-controlling interest decreased $0.9 million, or 110.7%, from net income of $0.8 million for the quarter ended June 30, 2018 to a net loss of $0.1 million for the quarter ended June 30, 2019. The decrease in net income attribute to non-controlling interest holders is due to the deconsolidation of CLO III
during the three months ended March 31, 2019.
Net income attributable to JMP Group LLC increased $0.9
million from a net loss of $2.0 million for the quarter ended June 30, 2018 to a net loss of $1.1
million for the quarter ended June 30, 2019. The increase in net income attributable to JMP Group LLC was primarily due to the decrease in net income attributable to non-controlling interest holders due to deconsolidation of CLO III during the three months ended March 31, 2019.
Revenues
Investment Banking
Investment banking revenues, earned in our Broker-Dealer segment, decreased $10.8 million, or 37.9%, from $28.6 million for the quarter ended June 30, 2018 to $17.8 million for the same period in 2019. As a percentage of total net revenues after provision for loan losses, investment banking revenues decreased from 64.5% for the quarter ended June 30, 2018 to 63.2% for the qua
rter ended June 30, 2019
. On an operating basis, investment banking revenues were 63.7% and 65.2% for the quarters ended
June 30
, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
(Dollars in thousands)
|
|
Three Months Ended June 30,
|
|
|
Change from 2019 to 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Count
|
|
|
Revenues
|
|
|
Count
|
|
|
Revenues
|
|
|
Count
|
|
|
|
$
|
|
|
%
|
|
Equity and debt origination
|
|
|
25
|
|
|
$
|
12,328
|
|
|
|
31
|
|
|
$
|
24,049
|
|
|
|
(6
|
)
|
|
$
|
(11,721
|
)
|
|
|
-48.7
|
%
|
Strategic advisory and private placements
|
|
|
3
|
|
|
|
5,408
|
|
|
|
6
|
|
|
|
4,513
|
|
|
|
(3
|
)
|
|
|
895
|
|
|
|
19.8
|
%
|
Total
|
|
|
28
|
|
|
$
|
17,736
|
|
|
|
37
|
|
|
$
|
28,562
|
|
|
|
(9
|
)
|
|
$
|
(10,826
|
)
|
|
|
-37.9
|
%
|
The decrease in revenues was driven by
a 24.3% decrease in the number of transactions executed and a 17.9% decrease in the average size of the fee paid per transaction. The number of transactions in which we acted as a bookrunning manager was seven for both of the quarters ended
June 30
, 2019 and 2018.
Brokerage Revenues
Brokerage revenu
es earned in our Broker-Dealer segment decreased from $5.4 million for the quarter ended June 30, 2018 to $4.7 million for the quarter ended June 30, 2019. Brokerage revenues increased as a percentage of total net revenues after provision for loan losses, from 12.3% for the
quarter ended
June 30
, 2018 to 16.6% for the quarter ended
June 30
, 2019.
On an operating basis, brokerage revenues were 16.7% and 12.4% for the quarters ended
June 30
, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
(In thousands)
|
|
Three Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Base management fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
1,508
|
|
|
$
|
3,264
|
|
Less: Non-controlling interest in HCAP Advisors
|
|
|
(275
|
)
|
|
|
(220
|
)
|
Total base management fees
|
|
|
1,233
|
|
|
|
3,044
|
|
|
|
|
|
|
|
|
|
|
Incentive fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
846
|
|
|
$
|
2,114
|
|
Less: Non-controlling interest in HCAP Advisors
|
|
|
-
|
|
|
|
-
|
|
Total incentive fees
|
|
|
846
|
|
|
|
2,114
|
|
|
|
|
|
|
|
|
|
|
Other fee income:
|
|
|
|
|
|
|
|
|
Fundraising fees and other
|
|
$
|
793
|
|
|
$
|
311
|
|
Less: Non-controlling interest in HCAP Advisors
|
|
|
(41
|
)
|
|
|
(42
|
)
|
Total other fee income
|
|
|
752
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
Asset management related fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
2,354
|
|
|
$
|
5,378
|
|
Fees reported as other income
|
|
|
793
|
|
|
|
311
|
|
Less: Non-controlling interest in HCAP Advisors
|
|
|
(316
|
)
|
|
|
(262
|
)
|
Total segment asset management related fee revenues
|
|
$
|
2,831
|
|
|
$
|
5,427
|
|
|
|
|
|
|
|
|
|
|
Fees reported as asset manage
ment fees were $2.4 million and $5.4 million for the quarters ended June 30, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, asset management revenues decreased from 12.1% for the quarter ended June 30, 2018 to 8.4% for the quarter ended June 30, 2019. Asset management fees decreased from the quarter ended June 30, 2018 due to the sale of the HSCP entities on December 31, 2018 which resulted in a decrease of approximately $360.0 million in assets under management.
Total segment asset management-related fees include base management fees and incentive fees from our funds, HCC and CLOs under management (through March 19, 2019), 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 believe that segment asset management-related fee revenues provides useful information by indicating the relative contributions of base management fees and performance-related incentive fees, thus facilitating a comparison of those fees in a given period to those in prior and future periods. 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 decreased $2.6 million, from $5.4 million for the quarter ended June 30, 2018 to $2.8 million for the quarter ended June 30, 2019. Total base management fees were $1.2 million and $3.0 million for the quarters ended June 30
, 2019 and 2018, respectively. Total incentive fees decreased from $2.1 million for the quarter ended
June 30
, 2018 to $0.8 million for the same period in 2019. On an operating basis, asset management related fee revenues were 10.2% and 12.4% for the quarters ended
June 30
, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
Principal transaction revenues decreased $0.3
million, from a gain of $1.7 million for the quarter ended
June 30
, 2018 to a gain of $1.4
million for the same period in 2019. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were 3.8% for the quarter ended
June 30
, 2018 and 5.1% for the quarter ended
June 30
, 2019.
Total segment principal transaction revenues increased from a $1.4 million for the quarter ended June 30, 2018 to a $1.5
million for the same period in 2019. 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 2019 and 2018 were based 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 June 30,
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Equity and other securities
|
|
$
|
(92
|
)
|
|
$
|
(399
|
)
|
Warrants and other investments
|
|
|
1,052
|
|
|
|
1,311
|
|
Investment partnerships
|
|
|
532
|
|
|
|
492
|
|
Total segment principal transaction revenues
|
|
|
1,492
|
|
|
|
1,404
|
|
Operating adjustment addbacks
|
|
|
(69
|
)
|
|
|
280
|
|
Total principal transaction revenues
|
|
$
|
1,423
|
|
|
$
|
1,684
|
|
|
|
|
|
|
|
|
|
|
The decrease in principal transaction revenue is primarily attributed to a $0.5 million decrease in revenues from other investments in the quarter ended June 30, 2018 compared to the same period in 2019. A large gain was recorded in the second quarter of 2018 related to the disposition of an investment and no such dispositions occurred in the second quarter of 2019. O
n an operating basis, as a percentage of adjusted net revenues, principal transaction revenues increased from 3.2% for the quarter ended
June 30
, 2018 to 5.4% for the quarter ended
June 30
, 2019.
Gain and Loss on Sale and Payoff of Loans
Loss on sale and payoff of loans decreased from a loss of $0.2 million for the quarter ended June 30, 2018 to a loss of $21 thousand for the quarter ended June 30, 2019. Gain and loss on sale and payoff of loans was incurred in our Investment Income segment.
On a segment basis, loss on sale and payoff of loans decreased from a loss of
$0.2 million f
or the quarter ended
June 30
, 2018 to $21 thousand for the quarter ended
June 30
, 2019.
Net Dividend Income
Net dividend income was $0.3 million for both of the quarters ended
June 30
, 2019 and 2018. Net dividend income primarily related to dividends from our HCC investment.
Net Interest
Income/Expense
(In thousands)
|
|
Three Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
CLO III loan contractual interest income
|
|
$
|
-
|
|
|
$
|
5,387
|
|
CLO III ABS issued contractual interest expense
|
|
|
-
|
|
|
|
(3,229
|
)
|
Net CLO III contractual interest
|
|
|
-
|
|
|
|
2,158
|
|
|
|
|
|
|
|
|
|
|
CLO IV loan contractual interest income
|
|
$
|
-
|
|
|
$
|
6,674
|
|
CLO IV ABS issued contractual interest expense
|
|
|
-
|
|
|
|
(4,796
|
)
|
Net CLO IV contractual interest
|
|
|
-
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
CLO V loan contractual interest income
|
|
$
|
-
|
|
|
$
|
3,287
|
|
CLO V warehouse/ABS issued contractual interest expense
|
|
|
-
|
|
|
|
(1,689
|
)
|
Net CLO V contractual interest
|
|
|
-
|
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
CLO VI loan contractual interest income
|
|
$
|
-
|
|
|
$
|
-
|
|
CLO VI warehouse credit facility contractual interest expense
|
|
|
-
|
|
|
|
-
|
|
Net CLO VI contractual interest
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Bond Payable interest expense
|
|
|
(1,732
|
)
|
|
|
(1,923
|
)
|
|
|
|
|
|
|
|
|
|
CLO subordinated notes interest income
|
|
|
2,491
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: Non-controlling interest and other adjustments
|
|
|
(17
|
)
|
|
|
(1,108
|
)
|
|
|
|
|
|
|
|
|
|
Other interest income
|
|
|
74
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
Total segment net interest income
|
|
$
|
816
|
|
|
$
|
2,927
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest and other adjustments
|
|
|
17
|
|
|
|
1,108
|
|
|
|
|
|
|
|
|
|
|
Total net interest income
|
|
$
|
833
|
|
|
$
|
4,035
|
|
|
|
|
|
|
|
|
|
|
Net interest income decreased $3.2 million from $4.0 million for the quarter ended June 30, 2018 to $0.8 million for the quarter ended June 30, 2019. The decrease in interest income was driven primarily by a $5.6 million decrease in interest earned on the CLOs as they were deconsolidated during the three months ended March 31, 2019, partially offset by a $2.5 million in interest income earned on the retained interest in CLO subordinated notes. As a percentage of total net revenues after provision for loan losses, net interest income was 9.1% for the quarter ended June 30, 2018 and 3.0% for the quarter ended June 30, 2019.
Total segment net interest income decreased from $2.9 million for the quarter ended June 30, 2018 to $0.8 million for the quarter ended June 30, 2019.
Net interest income is earned in our Investment Income segment and reflects our portion of the net CLO contractual interest before deconsolidation in the first quarter of 2019, net of bond interest expense. Total segment net interest income after deconsolidation 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 segment net revenues, net interest income was 6.7% for the quarter ended June 30, 2018 and 2.9% for the quarter ended
June 30
, 2019.
The following table sets forth contractual interest income and expense related to CLO loans and ABS issued (through the respective deconsolidation date of each CLO) and their weighted average contractual interest rates:
(In thousands)
|
|
Three Months Ended June 30, 2018
|
|
|
|
Interest Income (Expense)
|
|
|
Average CLO loan contractual interest income (CLO ABS contractual interest expense) Balance
|
|
|
Weighted Average Contractual Interest Rate
|
|
|
Weighted Average LIBOR
|
|
|
Spread to Weighted Average LIBOR
|
|
CLO III loan contractual interest income
|
|
$
|
5,387
|
|
|
$
|
350,811
|
|
|
|
5.75
|
%
|
|
|
2.24
|
%
|
|
|
3.51
|
%
|
CLO III ABS contractual interest expense
|
|
|
(3,229
|
)
|
|
|
(332,100
|
)
|
|
|
3.70
|
%
|
|
|
2.34
|
%
|
|
|
1.35
|
%
|
CLO IV loan contractual interest income
|
|
|
6,674
|
|
|
|
440,310
|
|
|
|
5.75
|
%
|
|
|
2.24
|
%
|
|
|
3.51
|
%
|
CLO IV ABS contractual interest expense
|
|
|
(4,796
|
)
|
|
|
(423,408
|
)
|
|
|
4.41
|
%
|
|
|
2.34
|
%
|
|
|
2.06
|
%
|
CLO V loan contractual interest income
|
|
|
3,287
|
|
|
|
220,423
|
|
|
|
5.60
|
%
|
|
|
2.26
|
%
|
|
|
3.34
|
%
|
CLO V warehouse contractual interest expense
|
|
|
(1,689
|
)
|
|
|
(309,145
|
)
|
|
|
3.46
|
%
|
|
|
2.09
|
%
|
|
|
1.38
|
%
|
Net CLO contractual interest
|
|
$
|
5,634
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
(in thousands)
|
|
Three Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
CLO related provision
|
|
$
|
-
|
|
|
$
|
(1,280
|
)
|
Non-CLO related provision
|
|
|
-
|
|
|
|
-
|
|
Provision for loan losses
|
|
|
-
|
|
|
|
(1,280
|
)
|
|
|
|
|
|
|
|
|
|
Less: General reserves related to CLOs and CLO warehouse
|
|
|
-
|
|
|
|
1,243
|
|
Segment provision for loan losses
|
|
$
|
-
|
|
|
$
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
P
rovision for loan losses decreased $1.3 million, from a
provision of $1.3 million for the quarter ended
June 30
, 2018 to a provision of zero for the same period in 2019. The decrease was due to deconsolidation of CLO III, CLO IV, CLO V, and CLO VI warehouse during the first quarter of 2019. As a percent of net revenues after provision for loan losses, the provision for loan losses was 2.9% of the quarter ended
June 30
, 2018 and zero for the quarter ended
June 30
, 2019.
Total segment provision for loan losses decreased from a provision of $37 thousand for the quarter ended June 30, 2018 to a provision of zero for the quarter ended June 30, 2019.
Total segment provision for loan losses is a non-GAAP financial measure that aggregates our segment reported provision for loan losses across each segment. Our total segment provision for loan losses in 2019 and 2018 was solely recognized in our Investment Income segment. As a percent of total segment adjusted net revenues, segment provision for loan losses decreased from 0.1% for the quarter ended
June 30
, 2018 and zero for the quarter ended
June 30
, 2019.
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, decreased $9.2 million, or 31.5%, from $29.1 million for the quarter ended June 30, 2018 to $19.9 million for the quarter ended June 30, 2019.
Employee payroll, taxes and benefits, and consultant fees decreased from $10.5 million for the quarter ended June 30, 2018 to $10.1 million for the quarter ended June 30, 2019
. Performance-based bonus and commission decreased $9.1 million from $18.3 million for the quarter ended
June 30
, 2018 to $9.2 million for the quarter ended
June 30
, 2019.
Equity-based compensation increased $0.2 million from $0.4 million for the quarter ended June 30, 2018 to $0.6 million for the quarter ended June 30, 2019.
Compensation and benefits as a percentage of revenues increased from 65.8% of total net revenues
after provision for loan losses for the quarter ended June, 2018 to 71.1% for the quarter ended June 30, 20
19. The decrease in the compensation and benefits is primarily due to the decrease in total net revenues between periods. As employee bonuses are performance based and make up a large percentage of total compensation decreased total net revenues has decreased compensation for the period.
Our segment reported compensation and benefits recognizes 100% of the cost of deferred compensation, including non-cash share-based compensation expense, 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. The segment reported compensation and benefits decreased $9.8 million from $28.8 million for the quarter ended
June 30
, 2018 to $19.0 million for the quarter ended June 30, 2019. As a percent of total segment net revenues, compensation and benefits were 65.6% for the quarter ended
June 30
, 2018 and 68.2% for the quarter ended
June 30
, 2019.
Administration
Administration expense was $2.7 million for both of the quarters ended June 30, 2019 and 2018. As a percentage of total net revenues after provision for loan losses, administration expense were 9.8% and 6.1% for the quarters ended June 30
, 2019 and 2018, respectively.
Brokerage, Clearing and Exchange Fees
Brokerage, clearing and exchange fees were $0.7 million and $0.8 million for the quarters ended June 30, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, our brokerage, clearing and exchange fees were 2.6% and 1.8% for the quarters ended June 30, 2019 and 2018, respectively.
Travel and Business Development
Travel and business development expenses were $1.3 million and $1.2 million for the quarters ended June 30, 2019 and 2018, respectively
. As a percentage of total net revenues after provision for loan losses, travel and business development expense was 4.8% and 2.7% and for the quarters ended
June 30
, 2019 and 2018, respectively.
Managed deal expenses
Managed deal expenses were $1.3 million and $2.3 million for the quarters ended
June 30
, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, managed deal expenses were 4.8% and 5.3% for the quarters ended
June 30
, 2019 and 2018, respectively.
Communications and Technology
Communications and technology expenses were $1.1 million
and $1.0 million for the quarters ended
June 30
, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, communications and technology expense were 4.0% and 2.4% for the quarters ended
June 30
, 2019 and 2018, respectively.
Occupancy
Occupancy expenses were $1.4 million and $1.1 million for the quarters ended June 30, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, occupancy expense were 5.0% and 2.6% for the quarters ended June 30, 2019 and 2018, respectively.
Professional Fees
Professional fees were $0.8 million and $1.1 million
for the quarters ended
June 30
, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, professional fees were 2.9% and 2.6% for the quarters ended
June 30
, 2019 and 2018, respectively.
Depreciation
Depreciation expenses were $0.3 million for both of the quarters ended
June 30
, 2019 and 2018. As a percentage of total net revenues after provision for loan losses, depreciation was 1.1% and 0.6% for the quarters ended
June 30
, 2019 and 2018, respectively.
Ot
her Expenses
Other expenses
were zero and $0.8 million for the quarters ended
June 30
, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, other expenses were zero and 1.8% for the quarters ended
June 30
, 2019 and 2018, respectively.
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest decreased from net income of $0.8 million for the quarter ended June 30, 2018 to net loss of $0.1 million for the quarter ended June 30
, 2019. The decrease in the income attributable to non-controlling interest holders is a result of the deconsolidation of CLO III during the three month ended March 31, 2019. Non-controlling interest for the quarter ended
June 30
, 2018 includes the interest of third parties in CLO III, HCAP Advisors, and HCS SI. Non-controlling interest for the quarter ended
June 30
, 2019 includes the interest of third parties in HCAP Advisors and HCS SI.
Provision for Income Taxes
The income tax recorded was a benefit of $0.5 million and an expense of $4.9 million for the quarters ended June 30, 2019 and 2018, respectively. The Company's tax expense decreased for the quarter ended June 30, 2019 from June 30, 2018 due to decreased net income from period to period. For the quarter ended June 30, 2019, an effective tax rate of 26% is assumed for our taxable parent company, based on our best estimation of the subsidiary’s average rate of taxation over the long term. For the quarter ended June 30, 2018, an effective tax rate of 26% is assumed at the taxable direct subsidiary and a tax rate of 0% is assumed at the other direct subsidiary, which was a "a pass through entity" for tax purposes. Segment income tax was a $0.2 million benefit and $0.5million expense for the quarters ended June 30, 2019 and 2018, respectively.
U.S. federal corporate income tax reform included a broad range of proposals affecting businesses, including corporate tax rates, business deductions and international tax provisions. The reduction in the federal corporate tax rate required a revaluation of our deferred tax assets at the corporate entity level. International tax provisions, including a shift to a territorial system, did not impact JMP Group LLC’s investment in foreign corporations, as the Company has historically included accumulated earnings and profits from controlled foreign corporations.
Six
Months Ended June 30, 2019 Compared to Six Months Ended
June 30
, 2018
Overview
Total net revenues after provision for loan losses was $71.5 million for the six months ended June 30, 2018 and $55.2 million for the same period in 2019.
Non-interest revenues decreased $18.9 million, or 27.1%, from $69.8 million for the six months ended June 30, 2018 to $50.9 million in the same period in 2019. This decrease was driven by a $19.6 million decrease in investment banking revenues and a $7.7 million decrease in asset management revenues, partially offset by a $8.6 million increase in principal transaction revenue.
Net interest income decreased $2.6 million, or 38.2%, from $7.0 million for the
six months
ended June 30, 2018 to $4.4 million for the
six months
ended June 30, 2019. The decrease in net interest income was due to the deconsolidation of the CLOs during the three month period ended March 31, 2019.
Loss on repurchase, reissuance, or early retirement of debt decreased $2.7 million from $2.7 million for the six months ended June 30, 2018 to zero for the six months ended June 30, 2019.
Provision for loan losses decreased
$2.7 million from a provision of $2.7 million for the
six months
ended June 30, 2018 to zero for the
six months
ended June 30, 2019. The decrease in provision of loan losses was due to the deconsolidation of the CLOs during the three months ended March 31, 2019.
Total non-interest expense
s decreased $19.2 million, or 25.6%, from $75.1 million for the
six months
ended June 30, 2018 to $55.9 million for the
six months
ended June 30, 2019, primarily due to a $16.2 million decrease in compensation and benefits, a $2.0 million decrease in managed deal expenses, and a $0.8 million decrease in professional fees.
Net income attributable to non-controlling interest increased $0.7 million, or 98.1%, from a net loss of $0.7 million for the
six months
ended June 30, 2018 to net loss of $13 thousand for the
six months
ended June 30, 2019.
Net income attributable to JMP Group LLC increased $6.3
million from a net loss of $2.3 million for the
six months
ended June 30, 2018 to net income of $4.0
million for the
six months
ended June 30, 2019. The increase in net income attributable to JMP Group LLC was due to the Company's election to be treated as a C-corporation for tax purposes which resulted in the Company recognizing initial temporary differences between the book and tax basis of assets and liabilities that were previously held by pass through entities.
Revenues
Investment Banking
Investment banking revenues, earned in our Broker-Dealer segment, decreased $19.6 million, or 39.8%, from $49.2 million for the six months ended June 30, 2018 to $29.6 million for the same period in 2019. As a percentage of total net revenues after provision for loan losses, investment banking revenues decreased from 68.9% for the six month
s ended June 30, 2018 to 53.6% for the six months ended June 30, 2019
. On an operating basis, investment banking revenues were 54.2% and 65.1% for the six months ended
June 30
, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
(Dollars in thousands)
|
|
Six Months Ended June 30,
|
|
|
Change from 2019 to 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Count
|
|
|
Revenues
|
|
|
Count
|
|
|
Revenues
|
|
|
Count
|
|
|
|
|
|
|
%
|
|
Equity and debt origination
|
|
|
42
|
|
|
$
|
19,117
|
|
|
|
52
|
|
|
$
|
35,911
|
|
|
|
(10
|
)
|
|
$
|
(16,794
|
)
|
|
|
-46.8
|
%
|
Strategic advisory and private placements
|
|
|
9
|
|
|
|
10,498
|
|
|
|
13
|
|
|
|
13,313
|
|
|
|
(4
|
)
|
|
|
(2,815
|
)
|
|
|
-21.1
|
%
|
Total
|
|
|
51
|
|
|
$
|
29,615
|
|
|
|
65
|
|
|
$
|
49,224
|
|
|
|
(14
|
)
|
|
$
|
(19,609
|
)
|
|
|
-39.8
|
%
|
The decrease in revenues was driven by
a 21.5% decrease in the number of transactions executed and a 23.3% decrease in the average size of the fee paid per transaction. The number of transactions in which we acted as a bookrunning manager was ten and eight for the
six months
ended
June 30
, 2019 and 2018, respectively.
Brokerage Revenues
Brokerage revenu
es earned in our Broker-Dealer segment decreased from $10.1 million for the six months ended June 30, 2018 to $9.2 million for the six months ended June 30, 2019. Brokerage revenues increased as a percentage of total net revenues after provision for loan losses, from 14.1% for the six months
end
ed
June 30
, 2018 to 16.6% for the
six months
ended
June 30
, 2019. On an operating basis, brokerage revenues were 16.8% and 13.4% for the
six months
ended
June 30
, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
(In thousands)
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Base management fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
3,205
|
|
|
$
|
6,325
|
|
Less: Non-controlling interest in HCAP Advisors
|
|
|
(500
|
)
|
|
|
(360
|
)
|
Total base management fees
|
|
|
2,705
|
|
|
|
5,965
|
|
|
|
|
|
|
|
|
|
|
Incentive fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
852
|
|
|
$
|
5,478
|
|
Less: Non-controlling interest in HCAP Advisors
|
|
|
(2
|
)
|
|
|
-
|
|
Total incentive fees
|
|
|
850
|
|
|
|
5,478
|
|
|
|
|
|
|
|
|
|
|
Other fee income:
|
|
|
|
|
|
|
|
|
Fundraising fees and other
|
|
$
|
758
|
|
|
$
|
360
|
|
Less: Non-controlling interest in HCAP Advisors
|
|
|
(83
|
)
|
|
|
(79
|
)
|
Total other fee income (loss)
|
|
|
675
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
Asset management related fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
4,057
|
|
|
$
|
11,803
|
|
Fees reported as other income
|
|
|
758
|
|
|
|
360
|
|
Less: Non-controlling interest in HCAP Advisors
|
|
|
(585
|
)
|
|
|
(439
|
)
|
Total segment asset management related fee revenues
|
|
$
|
4,230
|
|
|
$
|
11,724
|
|
|
|
|
|
|
|
|
|
|
Fees reported as asset manage
ment fees were $4.1 million and $11.8 million for the six months ended June 30, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, asset management revenues decreased from 16.5% for the six months ended June 30, 2018 to 7.3% for the six months ended June 30, 2019. Asset management fees decreased from the six months ended June 30, 2018 due to (i) the sale of the HSCP entities on December 31, 2018 which resulted in a decrease of approximately $360.0 million in assets under management and (ii) due to decreased incentive fees recorded in the six months ended June 30, 2019 compared to the same period in 2018. In the six months ended June 30, 2018, the Company recognized $5.3 million in incentive fees related to a hedge fund managed by the Company that liquidated during the period. As a result, the Company recognized incentive fees that were previously deferred due to the presence of claw backs.
Total segment asset management-related fees include base management fees and incentive fees from our funds, HCC and CLOs under management (through March 19, 2019), 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 believe that segment asset management-related fee revenues provides useful information by indicating the relative contributions of base management fees and performance-related incentive fees, thus facilitating a comparison of those fees in a given period to those in prior and future periods. 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 decreased $7.5 million, from $11.7 million for the six months ended June 30, 2018 to $4.2 million for the six months ended June 30, 2019. Total base management fees were $2.7 million and $6.0 million for the six months ended June 30
, 2019 and 2018, respectively. Total incentive fees decreased from $5.5 million for the
six months
ended
June 30
, 2018 to $0.9 million for the same period in 2019. On an operating basis, asset management related fee revenues were 7.7% and 15.5% for the
six months
ended
June 30
, 2019 and 2018, respectively, as a percentage of adjusted net revenues.
Principal Transactions
Principal transaction revenues increased $
8.6
million, from a loss of $1.9 million for the
six months
ended
June 30
, 2018 to a gain of $6.7
million for the same period in 2019. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were 2.7% for the
six months
ended
June 30
, 2018 and 12.1% for the
six months
ended
June 30
, 2019.
Total segment principal transaction revenues increased $6.8 million, from $0.1 million for the six months ended June 30, 2018 to a $6.9
million for the same period in 2019. 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 2019 and 2018 were based 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)
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Equity and other securities excluding non-controlling interest
|
|
$
|
1,369
|
|
|
$
|
(830
|
)
|
Warrants and other investments
|
|
|
5,360
|
|
|
|
730
|
|
Investment partnerships
|
|
|
150
|
|
|
|
221
|
|
Total segment principal transaction revenues
|
|
|
6,879
|
|
|
|
121
|
|
Operating adjustment addbacks
|
|
|
(168
|
)
|
|
|
(2,057
|
)
|
Total principal transaction revenues
|
|
$
|
6,711
|
|
|
$
|
(1,936
|
)
|
The increase in principal transaction revenue is primarily attributed to a $3.4 million gain on deconsolidation of JMPCA, an increase of $2.8 million in gains on investments in real estate, a $1.6 million increase in gains on principal investments, and a $1.0 million increase in gains from investments in private capital. O
n an operating basis, as a percentage of adjusted net revenues, principal transaction revenues increased from 0.2% for the
six months
ended
June 30
, 2018 to 12.6% for the quarter ended
June 30
, 2019.
Gain and Loss on Sale and Payoff of Loans
Loss on sale and payoff of loans decreased from a loss of $0.3 million for the six months ended June 30, 2018 to $38 thousand for the six months ended June 30, 2019. Gain and loss on sale and payoff of loans was incurred in our Investment Income segment. On an operating basis as a percentage of adjusted net revenues, gain and loss on sale and payoff of loans decreased from 0.5% for the six months ended June 30, 2018, to 0.1% for the six months ended June 30, 2019.
Net dividend income was $0.6 million for both of the
six months
ended
June 30
, 2019 and 2018. Net dividend income primarily related to dividends from our HCC investment.
Net Interest
Income/Expense
(In thousands)
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
CLO III loan contractual interest income
|
|
$
|
1,074
|
|
|
$
|
10,332
|
|
CLO III ABS issued contractual interest expense
|
|
|
(660
|
)
|
|
|
(6,337
|
)
|
Net CLO III contractual interest
|
|
|
414
|
|
|
|
3,995
|
|
|
|
|
|
|
|
|
|
|
CLO IV loan contractual interest income
|
|
$
|
6,240
|
|
|
$
|
12,752
|
|
CLO IV ABS issued contractual interest expense
|
|
|
(4,492
|
)
|
|
|
(8,936
|
)
|
Net CLO IV contractual interest
|
|
|
1,748
|
|
|
|
3,816
|
|
|
|
|
|
|
|
|
|
|
CLO V loan contractual interest income
|
|
$
|
5,400
|
|
|
$
|
4,694
|
|
CLO V warehouse/ABS issued contractual interest expense
|
|
|
(3,836
|
)
|
|
|
(2,332
|
)
|
Net CLO V contractual interest
|
|
|
1,564
|
|
|
|
2,362
|
|
|
|
|
|
|
|
|
|
|
CLO VI loan contractual interest income
|
|
$
|
551
|
|
|
$
|
-
|
|
CLO VI warehouse credit facility contractual interest expense
|
|
|
(245
|
)
|
|
|
-
|
|
Net CLO VI contractual interest
|
|
|
306
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Bond Payable interest expense
|
|
|
(3,461
|
)
|
|
|
(3,838
|
)
|
|
|
|
|
|
|
|
|
|
CLO subordinated notes interest income
|
|
|
3,151
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: Non-controlling interest and other adjustments
|
|
|
(212
|
)
|
|
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
Other interest income
|
|
|
629
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
Total segment net interest income
|
|
$
|
4,139
|
|
|
$
|
5,054
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest and other adjustments
|
|
|
212
|
|
|
|
1,989
|
|
|
|
|
|
|
|
|
|
|
Total net interest income
|
|
$
|
4,351
|
|
|
$
|
7,043
|
|
|
|
|
|
|
|
|
|
|
Net interest income decreased $2.6 million from $7.0 million for the six months ended June 30, 2018 to $4.4 million for the six months ended June 30, 2019. The decrease in interest income was driven primarily by a $6.1 million decrease in interest earned on the CLOs as they were deconsolidated during the three months ended March 31, 2019, partially offset by a $3.2 million in interest income earned on the retained interest in CLO subordinated notes. As a percentage of total net revenues after provision for loan losses, net interest income was 9.9% for the six months ended June 30, 2018 and 7.9% for the six months ended June 30, 2019.
Total segment net interest income decreased from $5.1 million for the six months ended June 30, 2018 to $4.1 million for the six months ended June 30, 2019.
Net interest income is earned in our Investment Income segment and reflects our portion of the net CLO contractual interest before deconsolidation and interest earned on the Company's retained interest in the CLOs after deconsolidation, net of bond interest expense. Total segment net interest income after deconsolidation 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 segment net revenues, net interest income was 6.7% for the
six months
ended June, 2018 and 7.6% for the quarter ended
June 30
, 2019.
The following table sets forth contractual interest income and expense related to CLO loans and ABS issued (through the respective deconsolidation date of each CLO) and their weighted average contractual interest rates:
(In thousands)
|
|
Six Months Ended June 30, 2019
|
|
|
|
Interest Income (Expense)
|
|
|
Average CLO loan contractual interest income (CLO ABS contractual interest expense) Balance
|
|
|
Weighted Average Contractual Interest Rate
|
|
|
Weighted Average LIBOR
|
|
|
Spread to Weighted Average LIBOR
|
|
CLO III loan contractual interest income (1)
|
|
$
|
1,074
|
|
|
$
|
351,245
|
|
|
|
6.21
|
%
|
|
|
2.72
|
%
|
|
|
3.49
|
%
|
CLO III ABS contractual interest expense (1)
|
|
|
(660
|
)
|
|
|
(332,100
|
)
|
|
|
3.96
|
%
|
|
|
2.61
|
%
|
|
|
1.35
|
%
|
CLO IV loan contractual interest income (2)
|
|
|
6,240
|
|
|
|
439,283
|
|
|
|
6.27
|
%
|
|
|
2.72
|
%
|
|
|
3.55
|
%
|
CLO IV ABS contractual interest expense (2)
|
|
|
(4,492
|
)
|
|
|
(421,173
|
)
|
|
|
4.76
|
%
|
|
|
2.72
|
%
|
|
|
2.05
|
%
|
CLO V loan contractual interest income (2)
|
|
|
5,400
|
|
|
|
394,925
|
|
|
|
6.23
|
%
|
|
|
2.72
|
%
|
|
|
3.52
|
%
|
CLO V warehouse/ABS contractual interest expense (2)
|
|
|
(3,836
|
)
|
|
|
(376,657
|
)
|
|
|
4.59
|
%
|
|
|
2.71
|
%
|
|
|
1.88
|
%
|
CLO VI loan contractual interest income (2)
|
|
|
551
|
|
|
|
38,006
|
|
|
|
6.33
|
%
|
|
|
2.77
|
%
|
|
|
3.56
|
%
|
CLO VI warehouse contractual interest expense (2)
|
|
|
(245
|
)
|
|
|
(28,981
|
)
|
|
|
4.02
|
%
|
|
|
2.77
|
%
|
|
|
1.25
|
%
|
Net CLO contractual interest
|
|
$
|
4,032
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Interest income and interest expense were earned and accrued through January 17, 2019.
|
|
Interest income and interest expense were earned and accrued through March 19, 2019.
|
(In thousands)
|
|
Six Months Ended June 30, 2018
|
|
|
|
Interest Income (Expense)
|
|
|
Average CLO loan contractual interest income (CLO ABS contractual interest expense) Balance
|
|
|
Weighted Average Contractual Interest Rate
|
|
|
Weighted Average LIBOR
|
|
|
Spread to Weighted Average LIBOR
|
|
CLO III loan contractual interest income
|
|
$
|
10,332
|
|
|
$
|
351,303
|
|
|
|
5.60
|
%
|
|
|
1.95
|
%
|
|
|
3.65
|
%
|
CLO III ABS contractual interest expense
|
|
|
(6,337
|
)
|
|
|
(332,100
|
)
|
|
|
3.49
|
%
|
|
|
2.01
|
%
|
|
|
1.48
|
%
|
CLO IV loan contractual interest income
|
|
|
12,752
|
|
|
|
436,213
|
|
|
|
5.60
|
%
|
|
|
1.96
|
%
|
|
|
3.64
|
%
|
CLO IV ABS contractual interest expense
|
|
|
(8,936
|
)
|
|
|
(423,450
|
)
|
|
|
4.08
|
%
|
|
|
2.01
|
%
|
|
|
2.07
|
%
|
CLO V loan contractual interest income
|
|
|
4,694
|
|
|
|
162,122
|
|
|
|
5.48
|
%
|
|
|
1.98
|
%
|
|
|
3.49
|
%
|
CLO V warehouse contractual interest expense
|
|
|
(2,332
|
)
|
|
|
(159,668
|
)
|
|
|
3.37
|
%
|
|
|
2.00
|
%
|
|
|
1.38
|
%
|
Net CLO contractual interest
|
|
$
|
10,173
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
CLO related provision
|
|
$
|
-
|
|
|
$
|
(2,555
|
)
|
Non-CLO related provision
|
|
|
-
|
|
|
|
(190
|
)
|
Provision for loan losses
|
|
|
-
|
|
|
|
(2,745
|
)
|
|
|
|
|
|
|
|
|
|
Less: General reserves related to CLOs and CLO warehouse
|
|
|
-
|
|
|
|
1,815
|
|
Segment provision for loan losses
|
|
$
|
-
|
|
|
$
|
(930
|
)
|
|
|
|
|
|
|
|
|
|
P
rovision for loan losses decreased $2.7 million, from a
provision of $2.7 million for the
six months
ended
June 30
, 2018 to a provision of zero for the same period in 2019. The decrease was due to deconsolidation of CLO III, CLO IV, CLO V, and CLO VI warehouse during the first quarter of 2019. As a percent of net revenues after provision for loan losses, the provision for loan losses was 3.8% of the
six months
ended
June 30
, 2018 and zero for the
six months
ended
June 30
, 2019.
Total segment provision for loan losses decreased from a provision of $0.9 million for the six months ended June 30, 2018 to a provision of zero for the six months ended June 30, 2019.
Total segment provision for loan losses is a non-GAAP financial measure that aggregates our segment reported provision for loan losses across each segment. Our total segment provision for loan losses in 2019 and 2018 was solely recognized in our Investment Income segment. As a percent of total segment adjusted net revenues, segment provision for loan losses decreased from 1.2% for the
six months
ended
June 30
, 2018 and zero for the
six months
ended
June 30, 2019.
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, decreased $16.2 million, or 30.4%, from $53.4 million for the six months ended June 30, 2018 to $37.2 million for the six months ended June 30, 2019.
Employee payroll, taxes and benefits, and consultant fees decreased from $22.6 million for the six months ended June 30, 2018 to $21.4 million for the six months ended June 30, 2019
. Performance-based bonus and commission decreased $14.3 million from $28.3 million for the
six months
ended
June 30
, 2018 to $14.0 million for the
six months
ended
June 30
, 2019.
Equity-based compensation increased $0.4 million from $0.7 million for the six months ended June 30, 2018 to $1.1 million for the six months ended June 30, 2019.
Compensation and benefits as a percentage of revenues decreased from 74.7% of total net revenues
after provision for loan losses for the
six months
ended June, 2018 to 67.3% for the
six months
ended June 30, 2019.
The decrease in the compensation and benefits as a percentage of revenues is primarily due to a change in the composition of revenues between periods. In the six months ended June 30, 2019, revenues were heavily comprised of items for which the employee compensation ratio is lower compared to the six months ended June 30, 2018. Additionally, during the six months ended June 30, 2018, the Company recognized $5.5 million of incentive fee revenues from a hedge fund, which resulted in the recognition of $4.9 million of performance-based bonus during that period. During the six months ended June 30, 2019, the Company recognized $0.9 million incentive fee revenue from hedge and capital
debt funds and as recognized $0.3 million of performance-based bonuses related to such incentive fee revenues.
Our segment reported compensation and benefits recognizes 100% of the cost of deferred compensation, including non-cash share-based compensation expense, 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. The segment reported compensation and benefits decreased $17.5 million from $52.5 million for the
six months
ended
June 30
, 2018 to $35.0 million for the
six months
ended June 30, 2019. As a percent of total segment net revenues, compensation and benefits were 69.5% for the
six months
ended
June 30
, 2018 and 64.0% for the
six months
ended
June 30
, 2019.
The decrease in the compensation and benefits as a percentage of revenues is primarily due to a change in the composition of revenues between periods. In the six months ended June 30, 2019, revenues were heavily comprised of items for which the employee compensation ratio is lower compared to the six months ended June 30, 2018.
Administration expense was $4.7 million and $4.9 million for the six months ended June 30, 2019 and 2018. As a percentage of total net revenues after provision for loan losses, administration expense were 8.5% and 6.9% for the six months ended June 30
, 2019 and 2018, respectively.
Brokerage, Clearing and Exchange Fees
Brokerage, clearing and exchange fees were $1.4 million and $1.6 million for the six months ended June 30, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, our brokerage, clearing and exchange fees were 2.6% and 2.2% for the six months ended June 30, 2019 and 2018, respectively.
Travel and Business Development
Travel and business development expenses were $2.4 million and $2.2 million for the six months ended June 30, 2019 and 2018, respectively
. As a percentage of total net revenues after provision for loan losses, travel and business development expense was 4.3% and 3.0% and for the
six months
ended
June 30
, 2019 and 2018, respectively.
Managed deal expenses were $1.9 million and $3.9 million for the
six months
ended
June 30
, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, managed deal expenses were 3.4% and 5.5% for the
six months
ended
June 30
, 2019 and 2018, respectively.
Communications and Technology
Communications and technology expenses were $2.2 million
and $2.1 million for the six months ended
June 30
, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, communications and technology expense were 3.9% and 3.0% for the
six months
ended
June 30
, 2019 and 2018, respectively.
Occupancy expenses were $2.8 million and $2.3 million for the six months ended June 30, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, occupancy expense were 5.1% and 3.2% for the six months ended June 30, 2019 and 2018, respectively.
Professional fees were $2.3 million and $3.0 million
for the
six months
ended
June 30
, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, professional fees were 4.1% and 4.3% for the
six months
ended
June 30
, 2019 and 2018, respectively.
Depreciation expenses were $0.6 million for both of the
six months
ended
June 30
, 2019 and 2018. As a percentage of total net revenues after provision for loan losses, depreciation was 1.1% and 0.8% for the
six months
ended
June 30
, 2019 and 2018, respectively.
Other expenses
were $0.5 million and $1.2 million for the
six months
ended
June 30
, 2019 and 2018, respectively. As a percentage of total net revenues after provision for loan losses, other expenses were 0.9% and 1.6% for the
six months
ended
June 30
, 2019 and 2018, respectively.
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest increased from net loss of $0.7 million for the six months ended June 30, 2018 to zero for the six months ended June 30
, 2019. The decrease in the net loss attributable to non-controlling interest holders is a result of the deconsolidation of CLO III during the three month ended March 31, 2019. Non-controlling interest for both of the
six months
ended
June 30
, 2019 and 2018 includes the interest of third parties in CLO III, HCAP Advisors, and HCS SI.
Provision for Income Taxes
The income tax benefit recorded was $4.6 million and $0.7 million for the six months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019, an effective tax rate of 26% is assumed for our taxable parent company, based on our best estimation of the subsidiary’s average rate of taxation over the long term. For the six months ended June 30, 2018, an effective tax rate of 26% is assumed at the taxable direct subsidiary and a tax rate of 0% is assumed at the other direct subsidiary, which was a "a pass through entity" for tax purposes. Segment income tax expense was $0.3 million and $0.5 million for the six months ended June 30, 2019 and 2018, respectively.
The Company recorded a tax benefit for the period ended June 30, 2019, despite larger than the Company's net loss before income tax expense due to a change in tax status effective January 1, 2019. During the six months ended June 30, 2019, the Company filed an election to be treated as a C corporation for tax purposes, rather than a partnership, which resulted in the Company recognizing initial temporary differences between the book and tax basis of assets and liabilities that were previously held under pass through entities.
U.S. federal corporate income tax reform included a broad range of proposals affecting businesses, including corporate tax rates, business deductions and international tax provisions. The reduction in the federal corporate tax rate required a revaluation of our deferred tax assets at the corporate entity level. International tax provisions, including a shift to a territorial system, did not impact JMP Group LLC’s investment in foreign corporations, as the Company has historically included accumulated earnings and profits from controlled foreign corporations.
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 six months ended June 30, 2019 to demonstrate where our capital is invested and the financial condition of the Company.
Overview
As of
June 30, 2019, we had net liquid assets
of $122.2 m
illion consisting of cash and cash equivalents, proceeds from short sales on deposit, receivable from clearing broker, marketable securities owned, and general partner investments in hedge funds managed by HCS, net of marketable securities sold but not yet purchased, accrued compensation, deferred compensation paid in January 2019, and non-controlling interest. 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 June 30, 2019, our indebtedness consists of our Senior Notes, line of credit, and a note payable. We have no outstanding balances on our revolving line of credit with City National Bank (“
CNB”) held at JMP Securities.
In January 2013, we raised approximately $46.0 million from the issuance of 8.00% Senior Notes (“2013 Senior Notes”). In January 2014, we raised approximately $48.3 million from the issuance of 7.25% Senior Notes (“2014 Senior Notes”), which were fully redeemed on December 28, 2017 and for which the Company recognized a $0.8 million loss on the early retirement of the 2014 Senior Notes. In November 2017, we raised approximately $50.0 million from the issuance of 7.25% Senior Notes (“2017 Senior Notes” and, together with the 2013 Senior Notes, the “Senior Notes”). The 2013 Senior Notes will mature on January 15, 2023 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 January 15, 2016, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2013 Senior Notes bear interest at a rate of 8.00% per year, payable quarterly on January 15, April 15, July 15 and October 15 of each year. The 2017 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 the Company’s option on or after November 28, 2020, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2017 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. The Company redeemed $10.0 million of the issued and outstanding 2013 Senior Notes on July 31, 2018. The Company recorded a loss of $0.2 million related to this partial retirement of the 2013 Senior Notes. On June 18, 2019 the Company announced its intent to redeem $11.0 million of issued and outstanding 2013 Senior Notes on July 18, 2019 (the "Redemption Date"). The notes were redeemed at 100% of their principal amount, $25, plus the accrued and unpaid interest thereon up to, but excluding, the Redemption Date.
In connection with the Reorganization Transaction, pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Group LLC, we entered into a Third Supplemental Indenture, dated as of October 15, 2014 (the “Third Supplemental Indenture”), among JMP Group Inc., as issuer, and JMP Group LLC and JMP Investment Holdings LLC, as guarantors (the “Guarantors”), and U.S. Bank National Association, as trustee. The Third Supplemental Indenture became effective on January 1, 2015. Under the Third Supplemental Indenture, the Guarantors jointly and severally provided a full and unconditional guarantee of the due and punctual payment of the principal and interest on the Senior Notes and the due and punctual payment or performance of all other obligations of JMP Group Inc. under the Indenture, dated as of January 24, 2013, between JMP Group Inc. and the Trustee, as supplemented by a First Supplemental Indenture, dated as of January 25, 2013, a Second Supplemental Indenture, dated as of January 29, 2014, a Third Supplemental Indenture, dated as of October 15, 2014, and a Fourth Supplemental Indenture, dated as of November 28, 2017.
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 1, 2019, the Borrower entered into a Fifth Amendment to the Credit Agreement (the “Fifth Amendment”) which made various updates, clarifications and conforming changes to the Credit Agreement relating to changes in the business and corporate structure of the Company since the Credit Agreement was originally entered into by the Borrower as well as the changes described below.
The Credit Agreement provides a $25.0 million revolving line of credit (the “Revolver”) through December 31, 2020. On such date, if the revolving period has not been previously extended, any outstanding amounts under the Revolver would convert to a term loan (the “Converted Term Loan”). The Converted Term Loan must be repaid in 12 quarterly installments commencing on January 1, 2021, with each of the first six installments being equal to 3.75% of the principal amount of the Converted Term Loan and each of the next six installments being equal to 5.0% of the principal amount of the Converted Term Loan. A final payment of all remaining principal and interest due under the Converted Term Loan must be made at the earlier of: (a) December 31, 2023; or (b) if certain liquidity requirements are not satisfied by the Company, the date that is last day of the fiscal quarter ending most recently (but no less than 60 days) prior to the earliest maturity date of any senior unsecured notes issued by JMP Group Inc. then outstanding.
The Credit Agreement provides that the Revolver may be used, on a revolving basis, to fund specified permitted investments in collateralized loan obligation vehicles. In addition, up to $5.0 million of the Revolver may be used, on a revolving basis, to fund other types of permitted investments and acquisitions and for working capital.
The Fifth Amendment modified the financial covenants in the Credit Agreement to provide for (a) a minimum fixed charge coverage ratio of at least 1.25 to 1.00 for each four-fiscal-quarter period, (b) a maximum senior leverage ratio of 2.25 to 1.00 as of the last day of each fiscal quarter, (c) a minimum liquidity to debt service ratio of at least 1.25 to 1.00 as of the last day of each fiscal quarter, and (d) a minimum net asset value to total funded debt ratio at all times of at least 1.35 to 1.00.
As of June 30, 2019, we were in compliance with all financial covenants in effect at that time. 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.
Separately, under a Revolving Note and Cash Subordination Agreement (the "Revolving Note"), JMP Securities holds a $20.0 million revolving line of credit with CNB to be used for regulatory capital purposes during its securities underwriting activities. The unused portion of the line bears interest at the rate of 0.25% per annum, paid monthly. On June 6, 2019, JMP Securities entered into an amendment to its Revolving Note. Pursuant to this amendment, the $20.0 million Revolving Note was renewed for one year. On June 8, 2020, any existing outstanding amount will convert to a term loan maturing the following year. The remaining terms of the Revolving Note are consistent with those of the existing agreement. There was no borrowing on this Revolving Note as of June 30, 2019 and December 31, 2018.
The Revolving Note 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 Revolving Note, which would permit CNB to terminate the Company’s note and require the immediate repayment of any outstanding principal and interest. At both June 30, 2019 and December 31, 2018, the Company was in compliance with the loan covenants.
On May 13, 2019, the Company launched a self-tendered offer (the “Tender Offer”) to repurchase for cash up to 3,000,000 of shares representing limited liability company interests of the Company. On June 13, 2019 the Company repurchased 1,816,732 shares under the Tender Offer at a price $3.95 per share for a total purchase price of $7.2 million, excluding fees and expenses related to the Tender Offer.
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 2019, we paid ou
t $37.1
million of cash bonuses for 2019, excluding employer payroll tax expense.
The Company currently intends to continue to declare quarterly cash distributions on all outstanding shares
. For the three months ended June 30, 2019, the Company declared cash distributions on all outstanding shares on April 29, 2019.
The distribution of $0.04 per share for the first quarter of 2019 was paid on May 31, 2019, to shareholders of record as of May 17, 2019.
During the three mon
ths ended June 30, 2019, the Company repurchased 1,978,303 of the Company
’s shares at an average price of $3.95 per share for an aggregate purchase price of $7.8 million, including shares repurchased under the Tender Offer,
excluding fees and expenses related to the Tender Offer.
We had total restricted cash of
$
1.2 million comprised primarily of restricted cash at JMP Group Inc. related to the Company's letters of credit on leasing arrangements.
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, shall not exceed 15 to 1. JMP Securities had net capital of $23.0 million and $29.8 million, which were $21.9 million and $28.7 million in excess of the required net capital of $1.1 million and $1.1 million, at June 30, 2019 and December 31, 2018, respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was 0.72 to 1 and 0.57 to 1 at June 30, 2019 and December 31, 2018, respectively.
A condensed
table of cash flows for the six months ended June 30, 2019 and 2018 is presented below.
(Dollars in thousands)
|
|
Six months ended June 30,
|
|
|
Change from 2018 to 2019
|
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
%
|
|
Cash flows used in operating activities
|
|
$
|
(31,139
|
)
|
|
$
|
(14,194
|
)
|
|
|
(16,945
|
)
|
|
|
-119.4
|
%
|
Cash flows used in investing activities
|
|
|
(57,856
|
)
|
|
|
(214,481
|
)
|
|
|
156,625
|
|
|
|
73.0
|
%
|
Cash flows provided by financing activities
|
|
|
10,309
|
|
|
|
188,449
|
|
|
|
(178,140
|
)
|
|
|
-94.5
|
%
|
Total cash flows
|
|
$
|
(78,686
|
)
|
|
$
|
(40,226
|
)
|
|
$
|
(38,460
|
)
|
|
|
-95.6
|
%
|
Cash Flows for the six months ended June 30, 2019
Cash decreased by $78.7
million during the six months ended June 30, 2019, as a result of cash used in operating and investing activities, partially offset by cash provided by financing activities.
Our operating activities used $
31.1 million of cash from the net income of $3.9 million, adjusted for the cash used by operating assets and liabilities of $31.2 million, and adjusted by non-cash revenue and expense items of $4.0 million. The cash used by the change in operating assets and liabilities was primarily due to a decrease in accrued compensation of $27.7 million, increases in deposits and other assets of $12.5 million, increases in interest receivable of $4.9 million, and decreases in interest payable of $3.4 million, partially offset by a $10.8 million decrease in marketable securities, and a $8.0 million increase in other liabilities.
Our investing activities used $
57.9 million of cash primarily due to a $35.2 million funding of loans collateralizing ABS issued, $27.8 million decrease in cash and restricted cash due to deconsolidation of subsidiaries, $25.6 million of funding of loans held for investment, and $9.6 million of purchases of other investments, partially offset by $23.8 million of receipts from loans collateralizing ABS issued, $10.4 million receipts from sales and distributions from other investments, and $7.0 million of in receipts from loans held for investment.
Our financing activities provided $10.3 million of cash primarily due to $16.6 million of proceeds from drawdowns on the line of credit, $7.8 million of proceeds from the drawdowns the CLO warehouse facility, partially offset by $8.6 million in purchases of common shares from treasury, $1.9 million in distributions and distribution equivalents on common shares and RSUs, $1.6 million in repayments on the line of credit, and $0.9 million of distributions to non-controlling interest shareholders.
Cash Flows for the six months Ended June 30, 2018
Cash decreased by $
40.2 million during the six months ended June 30, 2018, as a result of cash used in operating and investing activities, partially offset by cash provided by financing activities.
Our operating activities used $
14.2 million of cash from the net loss of $3.0 million, adjusted for the cash used by operating assets and liabilities of $19.0 million, and provided by non-cash revenue and expense items of $7.7 million. The cash used by the change in operating assets and liabilities was primarily due to a $17.8 million decrease in accrued compensation and a $8.3 million increase in interest receivable, partially offset by a $5.6 million decrease in deposits and other assets, a $2.5 million increase in other liabilities, and a $2.3 million increase in interest payable.
Our investing activities used $214.5
million of cash primarily due to a $193.0 million funding of loans collateralizing ABS issued and $225.4 million of funding for loans held for investment, partially offset by $172.4 million of receipts from loans collateralizing ABS issued, $22.1 million in receipts from loans held for investment, and $11.2 million in sales or distributions from other investments.
Our financing activities provided $188.4 million of cash primarily due to $327.6 million of proceeds from the issuance of asset-backed securities issued, $177.3 million of proceeds from drawdowns on CLO warehouse facilities, $18.0 million in proceeds from the line of credit, $4.5 million on proceeds from reissuance of asset-backed securities issues, and $3.9 million of proceeds from the Repurchase Agreement, partially offset by the repurchase of $332.1 million of ABS issued, $3.9 million of payments on the Repurchase Agreement, and $1.9 million in payments on debt issuance costs.
Contractual Obligations
As of
June 30, 2019, our aggregate minimum future commitment on our leases
was $31.3 mi
llion. See N
ote 9 of th
e notes to the consolidated financial statements for more information. Our remaining contractual obligations have not materially changed from those reported in our Annual Report.
Off-Balance Sheet Arrangements
The Company had unfunded commitments to lend of $0.8 million and $1.4 million as of June 30, 2019 and December 31, 2018, respectively. Had the borrower drawn on these, the Company would have been obligated to fund them. The funds for the unfunded commitments to lend and the cash collateral supporting these standby letters of credit are included in restricted cash on the Consolidated Statements of Financial Position as of December 31, 2018. The CLO-related commitments do not extend to JMP Group LLC. See Note
22
of the notes to the consolidated financial statements for more information on the financial instruments with off-balance sheet risk in connection with the CLOs.
Unfunded commitments are agreements to lend to a borrower, provided that all conditions have been met. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each borrower
’s creditworthiness on a case-by-case basis.
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.
We had no other material off-balance sheet arrangements as of
June 30, 2019. However, as described below under “Item 3. Quantitative and Qualitative Disclosures About Market Risk,” through indemnification provisions in our clearing agreements with our clearing broker, 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:
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the nature of the estimate
s 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
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the impact of the estimate
s or assumptions on our financial condition or operating performance is material.
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Using the foregoing criteria, we consider the following to be our critical accounting policies:
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Valuation of Financial Instruments
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Asset Management Investment Partnerships
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L
oans
Collateralizing Asset-backed Securities
Issued
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Allowance for Loan Losses
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Asset-backed Securities Issued
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Legal and Other Contingent Liabilities
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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 to our consolidated financial statements in our Annual Report.