UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014 OR
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-33448
JMP Group Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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20-1450327 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
600 Montgomery Street, Suite 1100, San Francisco, California 94111
(Address of principal executive offices)
Registrant’s telephone number: (415) 835-8900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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☒ |
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Non-accelerated filer |
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☐ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the Registrant’s common stock, par value $0.001 per share, outstanding as of April 30, 2014 was 21,706,307.
TABLE OF CONTENTS
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PART I. |
FINANCIAL INFORMATION |
4 |
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Item 1. |
Financial Statements - JMP Group Inc. |
4 |
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Consolidated Statements of Financial Condition – March 31, 2014 and December 31, 2013 (Unaudited) |
4 | |
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Consolidated Statements of Operations - For the Three Months Ended March 31, 2014 and 2013 (Unaudited) |
6 | |
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Consolidated Statements of Comprehensive Income - For the Three Months Ended March 31, 2014 and 2013 (Unaudited) |
7 | |
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Consolidated Statement of Changes in Equity - For the Three Months Ended March 31, 2014 (Unaudited) |
7 | |
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Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2014 and 2013 (Unaudited) |
8 | |
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Notes to Consolidated Financial Statements (Unaudited) |
10 | |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
31 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
53 |
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Item 4. |
Controls and Procedures |
54 |
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PART II. |
OTHER INFORMATION |
54 |
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Item 1. |
Legal Proceedings |
54 |
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Item 1A. |
Risk Factors |
54 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
55 |
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Item 3. |
Defaults Upon Senior Securities |
55 |
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Item 4. |
Mine Safety Disclosures |
55 |
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Item 5. |
Other Information |
55 |
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Item 6. |
Exhibits |
55 |
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SIGNATURES |
56 | |
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EXHIBIT INDEX |
57 | |
AVAILABLE INFORMATION
JMP Group Inc. is required to file current, annual and quarterly reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the Securities and Exchange Commission (the "SEC"). You may read and copy any document JMP Group Inc. files with the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at http://www.sec.gov, from which interested persons can electronically access JMP Group Inc.’s SEC filings.
JMP Group Inc. provides its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Forms 3, 4 and 5 filed by or on behalf of directors, executive officers and certain large stockholders, and any amendments to those documents filed or furnished pursuant to the Exchange Act free of charge on the Investor Relations section of its website located at http://www.jmpg.com. These filings will become available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. From time to time JMP Group Inc. may use its website as a channel of distribution of material company information.
JMP Group Inc. also makes available, in the Investor Relations section of its website and will provide print copies to stockholders upon request, (i) its corporate governance guidelines, (ii) its code of business conduct and ethics, and (iii) the charters of the audit, compensation, and corporate governance and nominating committees of its board of directors. These documents, as well as the information on the website of JMP Group Inc., are not intended to be part of this quarterly report and inclusions of our internet address in this Form 10-Q are inactive textual references only.
PART I. FINANCIAL INFORMATION
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ITEM 1. |
Financial Statements |
JMP Group Inc.
Consolidated Statements of Financial Condition
(Unaudited)
(Dollars in thousands, except per share data)
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March 31, 2014 |
December 31, 2013 |
|||||||
| Assets | ||||||||
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Cash and cash equivalents |
$ | 41,676 | $ | 65,906 | ||||
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Restricted cash and deposits (includes cash on deposit with clearing broker of $435 and $150 at March 31, 2014 and December 31, 2013, respectively) |
75,550 | 68,029 | ||||||
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Receivable from clearing broker |
1,557 | 1,280 | ||||||
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Investment banking fees receivable, net of allowance for doubtful accounts of zero at March 31, 2014 and December 31, 2013 |
15,507 | 13,161 | ||||||
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Marketable securities owned, at fair value |
31,505 | 29,295 | ||||||
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Incentive fee receivable |
2,919 | 7,910 | ||||||
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Other investments (includes $180,452 and $161,518 measured at fair value at March 31, 2014 and December 31, 2013, respectively) |
180,678 | 161,773 | ||||||
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Loans held for investment, net of allowance for loan losses |
1,144 | 825 | ||||||
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Loans collateralizing asset-backed securities issued, net of allowance for loan losses (1) |
783,326 | 727,270 | ||||||
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Interest receivable |
1,851 | 1,876 | ||||||
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Fixed assets, net |
2,019 | 2,092 | ||||||
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Deferred tax assets |
13,868 | 12,492 | ||||||
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Other assets |
12,215 | 30,022 | ||||||
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Total assets |
$ | 1,163,815 | $ | 1,121,931 | ||||
| Liabilities and Equity | ||||||||
| Liabilities: | ||||||||
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Marketable securities sold, but not yet purchased, at fair value |
$ | 14,506 | $ | 13,749 | ||||
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Accrued compensation |
18,256 | 51,347 | ||||||
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Asset-backed securities issued |
713,508 | 716,423 | ||||||
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Interest payable |
3,266 | 2,767 | ||||||
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Note payable |
- | 15,000 | ||||||
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Line of credit |
- | 2,895 | ||||||
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CLO III warehouse credit facility |
50,413 | - | ||||||
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Bond payable |
94,300 | 46,000 | ||||||
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Deferred tax liability |
3,841 | 3,625 | ||||||
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Other liabilities |
32,770 | 32,885 | ||||||
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Total liabilities |
930,860 | 884,691 | ||||||
| Commitments and Contingencies | ||||||||
| JMP Group Inc. Stockholders' Equity | ||||||||
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Common stock, $0.001 par value, 100,000,000 shares authorized; 22,780,052 shares issued at both March 31, 2014 and December 31, 2013; 21,833,073 and 21,819,446 shares outstanding at March 31, 2014 and December 31, 2013, respectively |
23 | 23 | ||||||
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Additional paid-in capital |
133,472 | 132,547 | ||||||
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Treasury stock, at cost, 946,979 and 960,606 shares at March 31, 2014 and December 31, 2013, respectively |
(5,967 | ) | (6,076 | ) | ||||
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Retained earnings (Accumulated deficit) |
2,845 | (109 | ) | |||||
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Total JMP Group Inc. stockholders' equity |
130,373 | 126,385 | ||||||
| Nonredeemable Non-controlling Interest | 102,582 | 110,855 | ||||||
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Total equity |
232,955 | 237,240 | ||||||
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Total liabilities and equity |
$ | 1,163,815 | $ | 1,121,931 | ||||
(1) Includes loans which will be used to collateralize CLO III. Refer to Note 5 for further discussion.
See accompanying notes to consolidated financial statements.
JMP Group Inc.
Consolidated Statements of Financial Condition - (Continued)
(Unaudited)
(Dollars in thousands, except per share data)
Assets and liabilities of consolidated variable interest entities ("VIEs") included in total assets and total liabilities above:
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March 31, 2014 |
December 31, 2013 |
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Cash and cash equivalents |
$ | 65 | $ | 211 | ||||
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Restricted cash |
44,454 | 43,497 | ||||||
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Loans collateralizing asset-backed securities issued, net of allowance for loan losses |
723,255 | 726,774 | ||||||
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Interest receivable |
1,614 | 1,851 | ||||||
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Incentive fees receivable |
136 | - | ||||||
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Deferred tax assets |
2,111 | 1,935 | ||||||
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Other assets |
3,098 | 3,602 | ||||||
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Total assets of consolidated VIEs |
$ | 774,733 | $ | 777,870 | ||||
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Accrued compensation |
125 | 405 | ||||||
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Asset-backed securities issued |
713,508 | 716,423 | ||||||
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Note payable (1) |
2,500 | 4,053 | ||||||
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Interest payable |
1,881 | 1,947 | ||||||
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Deferred tax liability |
1,564 | 1,647 | ||||||
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Other liabilities |
834 | 882 | ||||||
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Total liabilities of consolidated VIEs |
$ | 720,412 | $ | 725,357 | ||||
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(1) |
March 31, 2014 and December 31, 2013 balances are inclusive of intercompany loan. |
The asset-backed securities issued (“ABS”) by the VIE are limited recourse obligations payable solely from cash flows of the loans collateralizing them and related collection and payment accounts pledged as security. Accordingly, only the assets of the VIE can be used to settle the obligations of the VIE.
See accompanying notes to consolidated financial statements.
JMP Group Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
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Three Months Ended March 31, |
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2014 |
2013 |
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| Revenues | ||||||||
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Investment banking |
$ | 25,053 | $ | 12,107 | ||||
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Brokerage |
6,656 | 5,194 | ||||||
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Asset management fees |
5,544 | 6,751 | ||||||
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Principal transactions |
(3,693 | ) | 1,917 | |||||
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Gain on sale, payoff and mark-to-market of loans |
380 | 1,089 | ||||||
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Net dividend income (loss) |
235 | (8 | ) | |||||
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Other income |
222 | 288 | ||||||
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Non-interest revenues |
34,397 | 27,338 | ||||||
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Interest income |
8,588 | 8,158 | ||||||
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Interest expense |
(4,828 | ) | (11,299 | ) | ||||
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Net interest income (expense) |
3,760 | (3,141 | ) | |||||
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Provision for loan losses |
(497 | ) | (949 | ) | ||||
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Total net revenues after provision for loan losses |
37,660 | 23,248 | ||||||
| Non-interest expenses | ||||||||
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Compensation and benefits |
31,376 | 19,605 | ||||||
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Administration |
1,722 | 1,331 | ||||||
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Brokerage, clearing and exchange fees |
925 | 887 | ||||||
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Travel and business development |
851 | 958 | ||||||
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Communications and technology |
948 | 853 | ||||||
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Occupancy |
825 | 804 | ||||||
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Professional fees |
807 | 1,024 | ||||||
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Depreciation |
227 | 226 | ||||||
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Other |
212 | 83 | ||||||
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Total non-interest expenses |
37,893 | 25,771 | ||||||
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Net loss before income tax expense |
(233 | ) | (2,523 | ) | ||||
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Income tax expense (benefit) |
1,696 | (812 | ) | |||||
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Net loss |
(1,929 | ) | (1,711 | ) | ||||
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Less: Net income (loss) attributable to nonredeemable non-controlling interest |
(5,927 | ) | 8 | |||||
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Net income (loss) attributable to JMP Group Inc. |
$ | 3,998 | $ | (1,719 | ) | |||
| Net income (loss) attributable to JMP Group Inc. per common share: | ||||||||
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Basic |
$ | 0.17 | $ | (0.08 | ) | |||
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Diluted |
$ | 0.17 | $ | (0.08 | ) | |||
| Dividends declared per common share | $ | 0.045 | $ | 0.035 | ||||
| Weighted average common shares outstanding: | ||||||||
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Basic |
21,820 | 22,607 | ||||||
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Diluted |
23,612 | 22,607 | ||||||
See accompanying notes to consolidated financial statements.
JMP Group Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
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Three Months Ended March 31, |
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2014 |
2013 |
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Net loss |
$ | (1,929 | ) | $ | (1,711 | ) | ||
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Other comprehensive income |
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Unrealized gain on cash flow hedge, net of tax |
- | 14 | ||||||
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Comprehensive loss |
(1,929 | ) | (1,697 | ) | ||||
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Less: Comprehensive (loss) income attributable to non-controlling interest |
(5,927 | ) | 8 | |||||
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Comprehensive income (loss) attributable to JMP Group Inc. |
$ | 3,998 | $ | (1,705 | ) | |||
JMP Group Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
(In thousands)
|
JMP Group Inc. Stockholders' Equity |
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Retained |
Accumulated |
Nonredeemable | ||||||||||||||||||||||||||||||
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Additional |
Earnings |
Other |
Non- |
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Common Stock |
Treasury |
Paid-In |
(Accumulated |
Comprehensive |
controlling |
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Shares |
Amount |
Stock |
Capital |
Deficit) |
Loss |
Interest |
Total Equity |
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Balance, December 31, 2013 |
22,780 | $ | 23 | $ | (6,076 | ) | $ | 132,547 | $ | (109 | ) | $ | - | $ | 110,855 | $ | 237,240 | |||||||||||||||
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Net income |
- | - | - | - | 3,998 | - | (5,927 | ) | (1,929 | ) | ||||||||||||||||||||||
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Additonal paid-in capital - stock-based compensation |
- | - | - | 1,734 | - | - | - | 1,734 | ||||||||||||||||||||||||
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Dividends and dividend equivalents declared on common stock and restricted stock units |
- | - | - | - | (1,044 | ) | - | - | (1,044 | ) | ||||||||||||||||||||||
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Purchases of shares of common stock for treasury |
- | - | (33 | ) | - | - | - | - | (33 | ) | ||||||||||||||||||||||
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Reissuance of shares of common stock from treasury |
- | - | 142 | 35 | - | - | - | 177 | ||||||||||||||||||||||||
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Purchase of subsidiary shares from non-controlling interest holders |
- | - | - | (844 | ) | - | - | (5,156 | ) | (6,000 | ) | |||||||||||||||||||||
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Distributions to non-controlling interest holders |
- | - | - | - | - | - | 3,389 | 3,389 | ||||||||||||||||||||||||
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Capital contributions from non-controlling interest holders |
- | - | - | - | - | - | (579 | ) | (579 | ) | ||||||||||||||||||||||
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Balance, March 31, 2014 |
22,780 | $ | 23 | $ | (5,967 | ) | $ | 133,472 | $ | 2,845 | $ | - | $ | 102,582 | $ | 232,955 | ||||||||||||||||
See accompanying notes to consolidated financial statements.
JMP Group Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
Three Months Ended March 31, |
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2014 |
2013 |
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| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,929 | ) | $ | (1,711 | ) | ||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
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Provision for loan losses |
497 | 949 | ||||||
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Accretion of deferred loan fees |
(351 | ) | (701 | ) | ||||
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Amortization of liquidity discount, net |
(28 | ) | 8,740 | |||||
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Amortization of debt issuance costs |
85 | 31 | ||||||
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Amortization of original issue discount, related to CLO II |
224 | - | ||||||
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Interest paid in kind |
- | (351 | ) | |||||
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Gain on sale and payoff of loans |
(380 | ) | (999 | ) | ||||
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Change in other investments: |
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Fair value |
4,201 | (1,093 | ) | |||||
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Incentive fees reinvested in general partnership interests |
(1,921 | ) | (3,312 | ) | ||||
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Change in fair value of small business loans |
- | (90 | ) | |||||
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Realized loss (gain) on other investments |
9 | (167 | ) | |||||
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Depreciation and amortization of fixed assets |
227 | 226 | ||||||
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Stock-based compensation expense |
1,959 | 964 | ||||||
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Deferred income taxes |
(1,159 | ) | (3,599 | ) | ||||
| Net change in operating assets and liabilities: | ||||||||
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Decrease (increase) in interest receivable |
25 | (158 | ) | |||||
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Increase in receivables |
(15,485 | ) | (4,813 | ) | ||||
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Increase in marketable securities |
(2,210 | ) | (3,482 | ) | ||||
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Decrease (increase) in restricted cash (excluding restricted cash reserved for lending activities), deposits and other assets |
18,847 | (14,248 | ) | |||||
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Increase in marketable securities sold, but not yet purchased |
757 | 722 | ||||||
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Increase in interest payable |
499 | 628 | ||||||
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Decrease in accrued compensation and other liabilities |
(34,242 | ) | (6,733 | ) | ||||
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Net cash used in operating activities |
(30,375 | ) | (29,197 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of fixed assets | (154 | ) | (105 | ) | ||||
| Purchases of other investments | (23,282 | ) | (41,952 | ) | ||||
| Sales of other investments | 19,941 | 7,612 | ||||||
| Funding of loans collateralizing asset-backed securities issued | (127,933 | ) | (46,161 | ) | ||||
| Funding of small business loans | - | (1,000 | ) | |||||
| Funding of loans held for investment | (319 | ) | - | |||||
| Sale and payoff of loans collateralizing asset-backed securities issued | 60,569 | 38,293 | ||||||
| Principal receipts on loans collateralizing asset-backed securities issued | 11,570 | 6,413 | ||||||
| Net change in restricted cash reserved for lending activities | (6,940 | ) | 1,455 | |||||
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Net cash used in investing activities |
(66,548 | ) | (35,445 | ) | ||||
See accompanying notes to consolidated financial statements.
JMP Group Inc.
Consolidated Statements of Cash Flows - (Continued)
(Unaudited)
(In thousands)
|
Three Months Ended March 31, |
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2014 |
2013 |
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| Cash flows from financing activities: | ||||||||
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Proceeds from CLO III credit warehouse |
50,413 | - | ||||||
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Proceeds from bond issuance |
48,300 | 46,000 | ||||||
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Payments of debt issuance costs |
(1,707 | ) | (1,694 | ) | ||||
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Repayment of note payable |
(15,000 | ) | (3,934 | ) | ||||
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Repayment of line of credit |
(2,895 | ) | (6,000 | ) | ||||
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Repayment of asset-backed securities issued |
(3,139 | ) | - | |||||
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Dividends and dividend equivalents paid on common stock and RSUs |
(8 | ) | (809 | ) | ||||
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Purchases of shares of common stock for treasury |
(33 | ) | (82 | ) | ||||
|
Capital contributions of nonredeemable non-controlling interest holders |
(579 | ) | 7,317 | |||||
|
Distributions to non-controlling interest shareholders |
3,389 | (1,780 | ) | |||||
|
Purchase of subsidiary shares from non-controlling interest holders |
(6,000 | ) | - | |||||
|
Cash settlement of stock-based compensation |
(48 | ) | - | |||||
| Net cash provided by financing activities | 72,693 | 39,018 | ||||||
| Net decrease in cash and cash equivalents | (24,230 | ) | (25,624 | ) | ||||
| Cash and cash equivalents, beginning of period | 65,906 | 67,075 | ||||||
| Cash and cash equivalents, end of period | $ | 41,676 | $ | 41,451 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
|
Cash paid during the period for interest |
$ | 3,983 | $ | 1,436 | ||||
|
Cash paid during the period for taxes |
$ | 4,784 | $ | 2,848 | ||||
| Non-cash investing and financing activities: | ||||||||
|
Reissuance of shares of common stock from treasury related to vesting of restricted stock units and exercises of stock options |
$ | 142 | $ | 163 | ||||
See accompanying notes to consolidated financial statements.
JMP GROUP INC.
Notes to Consolidated Financial Statements
March 31, 2014
(Unaudited)
1. Organization and Description of Business
JMP Group Inc., together with its subsidiaries (collectively, the “Company”), is an independent investment banking and asset management firm headquartered in San Francisco, California. The Company conducts its brokerage business through JMP Securities LLC (“JMP Securities”), its asset management business through Harvest Capital Strategies LLC (“HCS”) and HCAP Advisors LLC (“HCAP Advisors“), its corporate credit business through JMP Credit Corporation (“JMP Credit”) and JMP Credit Advisors LLC (“JMPCA”), and certain principal investments through JMP Capital LLC (“JMP Capital”). The above entities, other than HCAP Advisors, are wholly-owned subsidiaries. JMP Securities is a U.S. registered broker-dealer under the Securities Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority (“FINRA”). JMP Securities operates as an introducing broker and does not hold funds or securities for, or owe any money or securities to customers and does not carry accounts for customers. All customer transactions are cleared through another broker-dealer on a fully disclosed basis. HCS is a registered investment advisor under the Investment Advisers Act of 1940, as amended, and provides investment management services for sophisticated investors in investment partnerships and other entities managed by HCS. From September 2011 through May 2013, the Company also conducted corporate credit business through partially owned Harvest Capital Credit LLC (“HCC LLC”). On December 18, 2012, HCAP Advisors was formed as a Delaware Limited Liability Company. Effective May 1, 2013, HCAP Advisors provides investment advisory services to Harvest Capital Credit Corporation (“HCC”). Through JMPCA, the Company manages Cratos CLO I Holdings, LLC (“CLO I”), JMPCA CLO II Ltd (“CLO II”) and JMPCA CLO III Ltd (“CLO III”).
2. Summary of Significant Accounting Policies
Recent Transactions
In January 2014, the Company contributed an additional $15.0 million investment to CLO III. With this contribution, the Company has met its $25.0 million commitment. The $25.0 million was used to purchase loans, prior to leveraging the existing CLO III credit warehouse held at BNP Paribas. As of March 31, 2014, $50.4 million was used from the credit facility to fund additional CLO III loans.
In the first quarter of 2014, the Company repurchased $6.0 million of the unsecured subordinated notes from CLO II non-controlling interests, increasing the Company’s ownership from 72.8% to 98.0%. The effects of changes on the Company’s equity from net income attributable to JMP Group Inc. and the purchase of CLO II non-controlling interest are noted below.
|
Three Months Ended March 31, |
||||||||
|
2014 |
2013 |
|||||||
|
Net income (loss) attributable to JMP Group Inc. |
$ | 3,998 | $ | (1,719 | ) | |||
|
Transfers from non-controlling interest |
||||||||
|
Decrease in JMP Group Inc. paid-in capital for purchase of CLO II interest |
(844 | ) | - | |||||
|
Net transfers from non-controlling interest |
(844 | ) | - | |||||
|
Change from net income (loss) attributable to JMP Group Inc and transfers from non-controlling interest |
$ | 3,154 | $ | (1,719 | ) | |||
Basis of Presentation
These consolidated financial statements and related notes are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its 2013 10-K. These consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for the fair statement of the results for the interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year.
The consolidated accounts of the Company include the wholly-owned subsidiaries, JMP Securities, HCS, JMP Capital, JMP Credit, JMPCA, CLO III (effective December 11, 2013), and the partially-owned subsidiaries Harvest Growth Capital LLC (“HGC”), Harvest Growth Capital II LLC (“HGC II”), HCC LLC (from August 18, 2011 through May 2, 2013), CLO I, CLO II (effective April 30, 2013), and HCAP Advisors (effective May 1, 2013). All material intercompany accounts and transactions have been eliminated in consolidation. Non-controlling interest on the Consolidated Statements of Financial Condition at March 31, 2014 and December 31, 2013 relate to the interest of third parties in the partly-owned subsidiaries.
See Note 2 - Summary of Significant Accounting Policies in the Company's 2013 10-K for the Company's significant accounting policies.
3. Recent Accounting Pronouncements
ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists was issued to provide guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity settles at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The adoption of ASU 2013-11 on January 1, 2014 did not have a material impact on the Company’s financial statement disclosures.
4. Fair Value Measurements
The following tables provide fair value information related to the Company’s financial instruments at March 31, 2014 and December 31, 2013:
|
At March 31, 2014 |
||||||||||||||||||||
|
(In thousands) |
Carrying Value |
Fair Value |
||||||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||||||
|
Assets: |
||||||||||||||||||||
|
Cash and cash equivalents |
$ | 41,676 | $ | 41,676 | $ | - | $ | - | $ | 41,676 | ||||||||||
|
Restricted cash and deposits |
75,550 | 75,550 | - | - | 75,550 | |||||||||||||||
|
Marketable securities owned |
31,505 | 31,505 | - | - | 31,505 | |||||||||||||||
|
Other investments |
180,678 | 2,048 | 70,004 | 108,400 | 180,452 | |||||||||||||||
|
Loans held for investment, net of allowance for loan losses |
1,144 | - | - | 1,046 | 1,046 | |||||||||||||||
|
Loans collateralizing asset-backed securities issued, net of allowance for loan losses |
783,326 | - | 792,393 | - | 792,393 | |||||||||||||||
|
Long term receivable |
1,084 | - | - | 1,273 | 1,273 | |||||||||||||||
|
Total assets: |
$ | 1,114,963 | $ | 150,779 | $ | 862,397 | $ | 110,719 | $ | 1,123,895 | ||||||||||
|
Liabilities: |
||||||||||||||||||||
|
Marketable securities sold, but not yet purchased |
$ | 14,506 | $ | 14,506 | $ | - | $ | - | $ | 14,506 | ||||||||||
|
Asset-backed securities issued |
713,508 | - | 708,509 | - | 708,509 | |||||||||||||||
|
Bond payable |
94,300 | - | 95,846 | - | 95,846 | |||||||||||||||
|
CLO III warehouse credit facility |
50,413 | - | 50,413 | - | 50,413 | |||||||||||||||
|
Total liabilities: |
$ | 872,727 | $ | 14,506 | $ | 854,768 | $ | - | $ | 818,861 | ||||||||||
|
At December 31, 2013 |
||||||||||||||||||||
|
(In thousands) |
Carrying Value |
Fair Value |
||||||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||||||
|
Assets: |
||||||||||||||||||||
|
Cash and cash equivalents |
$ | 65,906 | $ | 65,906 | $ | - | $ | - | $ | 65,906 | ||||||||||
|
Restricted cash and deposits |
68,029 | 68,029 | - | - | 68,029 | |||||||||||||||
|
Marketable securities owned |
29,295 | 29,295 | - | - | 29,295 | |||||||||||||||
|
Other investments |
161,773 | 57 | 49,389 | 112,072 | 161,518 | |||||||||||||||
|
Loans held for investment, net of allowance for loan losses |
825 | - | - | 693 | 693 | |||||||||||||||
|
Loans collateralizing asset-backed securities issued, net of allowance for loan losses |
727,270 | - | 737,327 | - | 737,327 | |||||||||||||||
|
Long term receivable |
1,152 | - | - | 1,364 | 1,364 | |||||||||||||||
|
Total assets: |
$ | 1,054,250 | $ | 163,287 | $ | 786,716 | $ | 114,129 | $ | 1,064,132 | ||||||||||
|
Liabilities: |
||||||||||||||||||||
|
Marketable securities sold, but not yet purchased |
$ | 13,749 | $ | 13,749 | $ | - | $ | - | $ | 13,749 | ||||||||||
|
Asset-backed securities issued |
716,423 | - | 710,961 | - | 710,961 | |||||||||||||||
|
Note payable |
15,000 | - | 15,000 | - | 15,000 | |||||||||||||||
|
Line of credit |
2,895 | - | 2,895 | - | 2,895 | |||||||||||||||
|
Bond payable |
46,000 | - | 46,552 | - | 46,552 | |||||||||||||||
|
Total liabilities: |
$ | 794,067 | $ | 13,749 | $ | 775,408 | $ | - | $ | 789,157 | ||||||||||
Recurring Fair Value Measurement
The following tables provide information related to the Company’s assets and liabilities carried at fair value on a recurring basis at March 31, 2014 and December 31, 2013:
|
(In thousands) |
March 31, 2014 |
|||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
|
Marketable securities owned |
$ | 31,505 | $ | - | $ | - | $ | 31,505 | ||||||||
|
Other investments: |
||||||||||||||||
|
Investments in hedge funds managed by HCS |
- | 66,511 | - | 66,511 | ||||||||||||
|
Investments in funds of funds managed by HCS |
- | - | 153 | 153 | ||||||||||||
|
Total investment in funds managed by HCS |
- | 66,511 | 153 | 66,664 | ||||||||||||
|
Investments in private equity/ real estate funds |
- | - | 6,178 | 6,178 | ||||||||||||
|
Warrants and other held at JMPS and JMPG LLC |
- | - | 741 | 741 | ||||||||||||
|
Equity securities in HGC, HGC II and JMP Capital |
2,048 | 3,493 | 94,260 | 99,801 | ||||||||||||
|
Forward purchase contract |
- | - | 7,068 | 7,068 | ||||||||||||
|
Total other investments |
2,048 | 70,004 | 108,400 | 180,452 | ||||||||||||
|
Total assets: |
$ | 33,553 | $ | 70,004 | $ | 108,400 | $ | 211,957 | ||||||||
|
Marketable securities sold, but not yet purchased |
14,506 | - | - | 14,506 | ||||||||||||
|
Total liabilities: |
$ | 14,506 | $ | - | $ | - | $ | 14,506 | ||||||||
|
(In thousands) |
December 31, 2013 |
|||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
|
Marketable securities owned |
$ | 29,295 | $ | - | $ | - | $ | 29,295 | ||||||||
|
Other investments: |
||||||||||||||||
|
Investments in hedge funds managed by HCS |
- | 44,647 | - | 44,647 | ||||||||||||
|
Investments in funds of funds managed by HCS |
- | - | 139 | 139 | ||||||||||||
|
Total investment in funds managed by HCS |
- | 44,647 | 139 | 44,786 | ||||||||||||
|
Investments in private equity/ real estate funds |
- | - | 5,967 | 5,967 | ||||||||||||
|
Warrants and other held at JMPS and JMPG LLC |
- | - | 1,121 | 1,121 | ||||||||||||
|
Equity securities in HGC, HGC II and JMP Capital |
57 | 4,742 | 97,981 | 102,780 | ||||||||||||
|
Forward purchase contract |
- | - | 6,864 | 6,864 | ||||||||||||
|
Total other investments |
57 | 49,389 | 112,072 | 161,518 | ||||||||||||
|
Total assets: |
$ | 29,352 | $ | 49,389 | $ | 112,072 | $ | 190,813 | ||||||||
|
Marketable securities sold, but not yet purchased |
13,749 | - | - | 13,749 | ||||||||||||
|
Total liabilities: |
$ | 13,749 | $ | - | $ | - | $ | 13,749 | ||||||||
The Company holds a limited partner investment in a private equity fund. This fund aims to achieve medium to long-term capital appreciation by investing in a diversified portfolio of technology companies that leverage the growth of Greater China. The Company also holds an investment in a real estate fund, which aims to generate revenue stream from investments in real estate joint ventures. The Company recognizes this investment using the fair value option. The primary reason for electing the fair value option was to measure gains on the same basis as the Company’s other equity securities, which are stated at fair value.
The Company’s Level 2 assets held in other investments consist of small business loans (through May 2, 2013), investments in hedge funds managed by HCS, and equity securities in HGC, HGC II, and JMP Capital. The fair value of the Level 2 small business loans is calculated using the average market bid and ask quotation obtained from a loan pricing service. The fair value of the investment in hedge funds is calculated using the net asset value. These assets are considered Level 2, as the underlying hedge funds are mainly invested in publicly traded stocks whose value is based on quoted market prices. The Level 2 equity securities in HGC, HGC II, and JMP Capital reflect investments in public securities, where the Company is subject to a lockup period. The fair value of the Level 2 equity securities in HGC, HGC II and JMP Capital is calculated by applying a discount rate to the quoted market prices of the portfolio securities due to lack of marketability.
The tables below provide a reconciliation of the beginning and ending balances for the assets held at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2014 and 2013.
|
(In thousands) |
Balance as of December 31, 2013 |
Purchases |
Sales |
Settlements |
Total gains (losses) - realized and unrealized included in earnings (1) |
Transfers in/(out) of Level 3 |
Balance as of March 31, 2014 |
Unrealized gains/(losses) included in earnings related to assets still held at reporting date |
||||||||||||||||||||||||
|
Investments in funds of funds managed by HCS |
$ | 139 | $ | - | $ | - | $ | - | $ | 14 | $ | - | $ | 153 | $ | 14 | ||||||||||||||||
|
Limited partner investment in private equity fund |
5,967 | - | - | (134 | ) | 345 | - | 6,178 | 345 | |||||||||||||||||||||||
|
Warrants and other held at JMPS |
1,121 | - | - | (19 | ) | (361 | ) | - | 741 | - | ||||||||||||||||||||||
|
Equity securities held by HGC, HGC II and JMP Capital |
97,981 | 2,788 | - | - | (6,509 | ) | - | 94,260 | (6,509 | ) | ||||||||||||||||||||||
|
Forward Purchase Contract |
6,864 | - | - | - | 204 | - | 7,068 | 204 | ||||||||||||||||||||||||
|
Total Level 3 assets |
$ | 112,072 | $ | 2,788 | $ | - | $ | (153 | ) | $ | (6,307 | ) | $ | - | $ | 108,400 | $ | (5,946 | ) | |||||||||||||
(1) No Level 3 asset gains (losses) are included in other comprehensive income. All realized and unrealized gains (losses) related to Level 3 assets are included in earnings.
|
(In thousands) |
Balance as of December 31, 2012 |
Purchases |
Sales |
Settlements |
Total gains (losses) - realized and unrealized included in earnings (1) |
Transfers in/(out) of Level 3 |
Balance as of March 31, 2013 |
Unrealized gains/(losses) included in earnings related to assets still held at reporting date |
||||||||||||||||||||||||
|
Investments in funds of funds managed by HCS |
$ | 109 | $ | - | $ | - | $ | - | $ | 8 | $ | - | $ | 117 | $ | 8 | ||||||||||||||||
|
Limited partner investment in private equity fund |
2,332 | - | - | - | 226 | - | 2,558 | 226 | ||||||||||||||||||||||||
|
Warrants and other held at JMPS |
413 | - | - | - | (117 | ) | - | 296 | (117 | ) | ||||||||||||||||||||||
|
Warrants and equity held at HCC |
2,577 | 100 | - | - | 425 | - | 3,102 | 425 | ||||||||||||||||||||||||
|
Small business loans |
35,447 | 1,389 | (43 | ) | - | 30 | - | 36,823 | 30 | |||||||||||||||||||||||
|
Equity securities held by HGC, HGC II and JMP Capital |
41,075 | 7,782 | - | - | (379 | ) | - | 48,478 | (379 | ) | ||||||||||||||||||||||
|
Forward Purchase Contract |
5,437 | - | - | - | (437 | ) | - | 5,000 | (437 | ) | ||||||||||||||||||||||
|
Total Level 3 assets |
$ | 87,390 | $ | 9,271 | $ | (43 | ) | $ | - | $ | (244 | ) | $ | - | $ | 96,374 | $ | (244 | ) | |||||||||||||
(1) No Level 3 asset gains (losses) are included in other comprehensive income. All realized and unrealized gains (losses) related to Level 3 assets are included in earnings.
Purchases and sales of Level 3 assets shown above were recorded at fair value at the date of the transaction.
Total gains and losses included in earnings represent the total gains and/or losses (realized and unrealized) recorded for the Level 3 assets and are reported in Principal Transactions in the accompanying Consolidated Statements of Operations.
Transfers between levels of the fair value hierarchy result from changes in the observability of fair value inputs used in determining fair values for different types of financial assets and are recognized at the beginning of the reporting period in which the event or change in circumstances that caused the transfer occurs.
There was one transfer of $2.0 million into Level 1 from Level 2 for the three months ended March 31, 2014 as a result of the expiration of a lockup discount. There were no other transfers between Level 1, Level 2 or Level 3 during the three months ended March 31, 2014 and 2013.
Included in other investments are investments in partnerships in which one of the Company’s subsidiaries is the investment manager and general partner. The Company accounts for these investments using the equity method as described in Note 2 - Summary of Significant Accounting Policies in the Company's 2013 10-K. The Company’s proportionate share of those investments is included in the tables above. In addition, other investments include warrants and investments in funds managed by third parties. The investments in private investment funds managed by third parties are generally not redeemable at the option of the Company. As of March 31, 2014, the Company had unfunded investment commitments of $0.1 million related to private investment funds managed by third parties.
The amount of unrealized gains and losses included in earnings attributable to the change in unrealized gains and losses relating to Level 3 assets still held at the end of the period are reported in Principal Transactions in the accompanying Consolidated Statements of Operations.
The Company used the following valuation techniques with unobservable inputs when estimating the fair value of the Level 3 assets:
|
Dollars in thousands |
Fair Value at March 31, 2014 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average) | ||||||||||
| Investments in Funds of Funds managed by HCS (1) | $ | 153 | Net Asset Value | N/A | N/A | |||||||||
| Limited Partner in Private Equity /Real Estate Fund (1) | $ | 6,178 | Net Asset Value | N/A | N/A | |||||||||
|
Warrants and Other held at JMPS and JMPG LLC |
$ | 741 |
Black-Scholes Option Model |
Annualized volatility of credit |
0% | - | 18.25%(16.77%) | |||||||
| Equity securities in HGC, HGC II and JMP Capital (2) | $ | 94,260 | Market comparable companies | Revenue multiples | 3.3x | - | 16.4x (7.1x) | |||||||
| EBITDA multiples | 13.7x | - | 26.9x (18.6x) | |||||||||||
| (3) |
Discount for lack of marketability |
30% | - | 40%(32%) | ||||||||||
| Market transactions | Revenue multiples | 3.5x | - | 7.0x (5.3x) | ||||||||||
| EBITDA multiples | 11.8x | - | 26.6x (17.6x) | |||||||||||
| Control premium | 25% | |||||||||||||
| Forward purchase contract (2) | $ | 7,068 | Market comparable companies | Revenue multiples | 10.5x | - | 16.4x (13.1x) | |||||||
| Billing multiples | 8.6x | - | 12.3x (10.2x) | |||||||||||
| (3) |
Discount for lack of marketability |
30% | ||||||||||||
|
Market transactions |
Revenue multiples |
7.0x | ||||||||||||
|
Control premium |
25% | |||||||||||||
(1) The Company uses the reported net asset value per share as a practical expedient to estimate the fair value of the investments in funds of funds managed by HCS and limited partner investment in private equity funds.
(2) The fair value of each HGC, HGC II and JMP Capital investment is calculated using a weighted allocation between the fair values assessed by the public comparables and M&A comparable valuation techniques.
(3) The Company applies a discount for lack of marketability (“DLOM”) to its investments, ranging from 30% to 50%. The discount is determined by the level of revenue of the investee and proximity to filing. The minimum discount applied is 30% for investees that either generate revenue exceeding $100 million, or have filed a registration statement. Higher discounts are applied to investees with less than $100 million of revenue or that are not on file, reflecting the longer anticipated term to a liquidity event. When HGC and HGC II investments become public, the Company is typically subject to a lock up period. In valuing these public companies, the Company has incorporated 5% per month of lockup into its valuations. As the typical lockup period is six months, the DLOM methodology has a floor threshold of 30% to mirror the discount rates applied once the investment goes public.
|
Dollars in thousands |
Fair Value at December 31, 2013 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average) | ||||||||||
| Investments in Funds of Funds managed by HCS (1) | $ | 139 | Net Asset Value | N/A | N/A | |||||||||
| Limited Partner in Private Equity /Real Estate Fund (1) | $ | 5,967 | Net Asset Value | N/A | N/A | |||||||||
|
Warrants and Other held at JMPS and JMPG LLC |
$ | 1,121 |
Black-Scholes Option Model |
Annualized volatility of credit |
15.4% | - | 25.4%(13.4%) | |||||||
| Equity securities in HGC, HGC II and JMP Capital (2) | $ | 97,981 | Market comparable companies | Revenue multiples | 2.4x | - | 14.5x (6.3x) | |||||||
| EBITDA multiples | 14.9x | - | 31.9x (22.1x) | |||||||||||
| (3) |
Discount for lack of marketability |
30% | - | 40%(32%) | ||||||||||
| Market transactions | Revenue multiples | 3.4x | - | 7.6x (5.7x) | ||||||||||
| EBITDA multiples | 11.8x | - | 26.6x (17.7x) | |||||||||||
|
Control premium |
25% | |||||||||||||
| Forward purchase contract (2) | $ | 6,864 | Market comparable companies | Revenue multiples | 10.6x | - | 14.5x (12.3x) | |||||||
| Billing multiples | 8.7x | - | 11.6x (10.0x) | |||||||||||
| (3) |
Discount for lack of marketability |
30% | ||||||||||||
|
Market transactions |
Revenue multiples |
7.0x | ||||||||||||
|
Control premium |
25% | |||||||||||||
(1) The Company uses the reported net asset value per share as a practical expedient to estimate the fair value of the investments in funds of funds managed by HCS and limited partner investment in private equity funds.
(2) The fair value of each HGC, HGC II and JMP Capital investment is calculated using a weighted allocation between the fair values assessed by the public comparables and M&A comparable valuation techniques.
(3) The Company applies a DLOM to its investments, ranging from 30% to 50%. The discount is determined by the level of revenue of the investee and proximity to filing. The minimum discount applied is 30% for investees that either generate revenue exceeding $100 million, or have filed a registration statement. Higher discounts are applied to investees with less than $100 million of revenue or that are not on file, reflecting the longer anticipated term to a liquidity event.
The significant unobservable input used in the fair value measurement of the warrants held at JMP Securities is the annualized volatility of credit. Significant increases in the rate would result in a significantly higher fair value measurement.
The significant unobservable inputs used in the fair value measurement of the equity securities and the forward purchase contract in HGC, HGC II and JMP Capital are Revenue, EBITDA and Billing multiples, discount for lack of marketability, and control premiums. Significant increases in the multiples in isolation would result in a significantly higher fair value measurement. Increases in the discounts and premium in isolation would result in decreases to the fair value measurement.
Non-recurring Fair Value Measurements
The Company's assets that are measured at fair value on a non-recurring basis result from the application of lower of cost or market accounting or write-downs of individual assets. The Company held no assets measured at fair value on a non-recurring basis at March 31, 2014 or December 31, 2013.
Small Business Loans
Small business loans represent the secured subordinated debt extended by HCC LLC to small to mid-sized companies. At inception, the loans were carried at the principal amount outstanding net of deferred fees, deferred costs and the allowance for loan losses. Changes to adopt investment company accounting were retrospectively applied and as of September 30, 2012, HCC LLC reported all investments, including debt investments, at market value or, in the absence of a readily available market value, at fair value, with unrealized gains and losses recorded in Gain on sale, payoff and mark-to-market on the Consolidated Statements of Operations. The Company recorded unrealized gains of $0.1 million relating to the fair value adjustment of small business loans in the first quarter of 2013, prior to the deconsolidation of HCC LLC on May 2, 2013.
In connection with the HCC initial public offering on May 2, 2013, the Company ceased consolidating HCC LLC and began recognizing its investment, including common stock and warrants of HCC, using the fair value option. The primary reason for electing the fair value option was to measure gains on the same basis as the Company’s other equity securities, which are stated at fair value. The Company’s investments in HCC common stock and warrants are included in other investments. The Company recorded unrealized loss of $0.1 million in the quarter ended March 31, 2014 related to its investments in HCC. Dividends received during the quarter ended March 31, 2014 on HCC stock of $0.2 million were recorded in net dividend income on the Consolidated Statements of Operations.
Loans Held for Investment
At both March 31, 2014 and December 31, 2013, loans held for investment included two loans. Given the small size of this loan portfolio segment, the Company reviews credit quality of the loans within this portfolio segment on a loan by loan basis mainly focusing on the borrower’s financial position and results of operations as well as the current and expected future cash flows on the loan.
Effective July 1, 2013, the Company agreed to lend a health sciences fund investment advising company up to $2.0 million, at an interest rate of 10% per year. The outstanding principal balance and all accrued and unpaid interest is due and payable on July 1, 2018. As of March 31, 2014 and December 31, 2013, the Company’s loan outstanding to this entity was $1.1 million and $0.8 million, respectively.
The Company determined the fair value of loans held for investment to be $0.7 million as of both March 31, 2014 and December 31, 2013, using anticipated cash flows, discounted at an appropriate market credit adjusted interest rate.
Investments at Cost
On February 11, 2010, the Company made a $1.5 million investment in Class D Preferred Units of Sanctuary Wealth Services LLC (“Sanctuary”), which provides a turnkey platform that allows independent wealth advisors to establish an independent advisory business without the high startup costs and regulatory hurdles. During the fourth quarter of 2010, the Company determined that its investment in Sanctuary was fully impaired and recorded an impairment loss of $1.5 million, which was included in Principal Transactions on the Consolidated Statements of Operations.
On April 3, 2012, the Company purchased a $2.3 million receivable for $1.4 million from Sanctuary. The $1.4 million was comprised of $0.5 million in cash consideration and $0.9 million in connection with the partial redemption of the $1.5 million investment in Sanctuary. The Company recognized the $0.9 million as a gain in Principal Transactions, and the $2.3 million receivable in Other Assets. The carrying value of the long-term receivable was $1.1 million and $1.2 million as of March 31, 2014 and December 31, 2013, respectively. The Company determined the fair value of the long-term receivable to be $1.3 million and $1.4 million as of March 31, 2014 and December 31, 2013, respectively, using anticipated cash flows, discounted at an appropriate market credit adjusted interest rate. Significant increases in the market credit adjusted interest rate in isolation would result in decreases to the fair value measurement.
Derivative Financial Instruments
The Company entered into a forward purchase contract to secure the acquisition of shares of a privately-held company. The contract and subsequent amendment incorporates downside protection for up to two years, for a cost basis of $5.0 million. In January 2012, the Company exchanged $5.0 million for physical custody of the shares. For two years beginning December 1, 2012, the Company could, at its discretion, become the beneficial and record holder of the shares. If the Company has not yet exercised its option at December 1, 2014, the shares will be assigned automatically to the Company. This contract is recorded in Other Investments in the Consolidated Statements of Financial Condition at fair value. The Company records changes in the fair value of this forward contract as unrealized gain or loss in Principal Transactions. For the three months ended March 31, 2014 and 2013, the Company recorded $0.2 million unrealized gain and a $0.4 million unrealized loss. Once the shares are in the Company’s name, the shares will be accounted for as equity securities, remaining in Other Investments in the Consolidated Statements of Financial Condition.
5. Loans Collateralizing Asset-backed Securities Issued
Loans collateralizing asset-backed securities issued are commercial loans securitized and owned by the Company’s CLOs. The loans consist of those loans within the CLO securitization structure at the acquisition date of CLO I and loans purchased by the CLOs subsequent to the CLO I acquisition date. As of March 31, 2014, CLO III was not yet funded, and therefore, the loans in this entity were not collateralizing asset-backed securities issued. However, given the intent of the CLO III structure, these loans were included in the loans collateralizing asset-backed securities line item. The following table presents the components of loans collateralizing asset-backed securities issued as of March 31, 2014 and December 31, 2013:
|
(In thousands) |
Loans Collateralizing Asset-backed Securities |
|||||||
|
March 31, 2014 |
December 31, 2013 |
|||||||
|
Outstanding principal |
$ | 792,461 | $ | 735,891 | ||||
|
Allowance for loan losses |
(4,368 | ) | (3,871 | ) | ||||
|
Liquidity discount |
(1,140 | ) | (1,168 | ) | ||||
|
Deferred loan fees, net |
(3,627 | ) | (3,582 | ) | ||||
|
Valuation allowance |
N/A |
N/A |
||||||
| Total loans, net | $ | 783,326 | $ | 727,270 | ||||
Loans recorded upon the acquisition of CLO I at fair value reflect a liquidity discount and a credit discount. The tables below summarize the activity in the loan principal, allowance for loan losses, liquidity discount, deferred loan fees and carrying values, net for the loans as of and for the three months ended March 31, 2014:
|
(In thousands) |
Three Months Ended March 31, 2014 |
|||||||||||||||||||
|
Principal |
Allowance for Loan Losses |
Liquidity Discount |
Deferred Loan Fees |
Carrying Value, Net |
||||||||||||||||
|
Non-impaired Loans |
||||||||||||||||||||
|
Balance at beginning of period |
$ | 735,891 | $ | (3,871 | ) | $ | (1,168 | ) | $ | (3,582 | ) | $ | 727,270 | |||||||
|
Purchases |
128,770 | - | - | (837 | ) | 127,933 | ||||||||||||||
|
Repayments |
(11,570 | ) | - | - | - | (11,570 | ) | |||||||||||||
|
Accretion of discount |
- | - | 28 | 351 | 379 | |||||||||||||||
|
Provision for loan losses |
- | (497 | ) | - | - | (497 | ) | |||||||||||||
|
Sales and payoff |
(60,630 | ) | - | - | 441 | (60,189 | ) | |||||||||||||
|
Balance at end of period |
$ | 792,461 | $ | (4,368 | ) | $ | (1,140 | ) | $ | (3,627 | ) | $ | 783,326 | |||||||
The tables below summarize the activity in the loan principal, allowance for loan losses, liquidity discount, deferred loan fees and carrying values, net for the impaired loans and non-impaired loans as of and for the three months ended March 31, 2013:
|
(In thousands) |
Three Months Ended March 31, 2013 |
|||||||||||||||||||
|
Principal |
Allowance for Loan Losses |
Liquidity Discount |
Deferred Loan Fees |
Carrying Value, Net |
||||||||||||||||
|
Impaired Loans |
||||||||||||||||||||
|
Balance at beginning of period |
$ | 3,517 | $ | (1,022 | ) | $ | (720 | ) | $ | (16 | ) | $ | 1,759 | |||||||
|
Purchases |
(11 | ) | - | - | - | (11 | ) | |||||||||||||
|
Accretion of discount |
- | - | - | 2 | 2 | |||||||||||||||
|
Provision for loan losses |
- | (870 | ) | - | - | (870 | ) | |||||||||||||
|
Balance at end of period |
$ | 3,506 | $ | (1,892 | ) | $ | (720 | ) | $ | (14 | ) | $ | 880 | |||||||
|
Non-impaired Loans |
||||||||||||||||||||
|
Balance at beginning of period |
$ | 410,483 | $ | (2,105 | ) | $ | ||||||||||||||