Organization and Description of Business

JMP Group LLC, together with its subsidiaries (collectively, the “Company”), is a diversified financial services firm headquartered in San Francisco, California. The Company conducts its investment banking and institutional brokerage business through JMP Securities LLC (“JMP Securities”) and its asset management business through Harvest Capital Strategies LLC (“HCS”), HCAP Advisors LLC (“HCAP Advisors”), JMP Asset Management LLC (“JMPAM”) and JMP Credit Advisors LLC (“JMPCA”) (through

March 19, 2019).

The Company conducts certain principal investment transactions through JMP Investment Holdings LLC (“JMP Investment Holdings”) and other subsidiaries. The above entities, other than HCAP Advisors, are wholly-owned subsidiaries. JMP Securities is a U.S. registered broker-dealer under the Securities Exchange Act of

1934,

as amended (the “Exchange Act”), and is a member of the Financial Industry Regulatory Authority (“FINRA”). JMP Securities operates as an introducing broker and does

not

hold funds or securities for, or owe any money or securities to, customers and does

not

carry accounts for customers. All customer transactions are cleared through another broker-dealer on a fully disclosed basis. HCS is a registered investment advisor under the Investment Advisers Act of

1940,

as amended, and provides investment management services for sophisticated investors in investment partnerships and other entities managed by HCS. HCAP Advisors provides investment advisory services to Harvest Capital Credit Corporation (“HCC”), a publicly-traded business development company. JMPAM currently manages

two

fund strategies:

one

that invests in real estate and real estate-related enterprises and another that provides credit to small and midsized private companies. JMPCA is an asset management platform that underwrites and manages investments in senior secured debt. The Company completed a Reorganization Transaction in

January 2015

pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Group LLC (the “Reorganization Transaction”). The Company entered into a Contribution Agreement in

November 2017

pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Investment Holdings, which is a wholly-owned subsidiary of JMP Group LLC.

Recent Transactions

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”). During the non-call period the Company concluded that it was the primary beneficiary of CLO III through its combination of control over the manager and its economic interest in CLO III. When the non-call period expired, holders of a majority of the subordinated notes could refinance or liquidate the CLO and the Company determined this to be the most significant activity. The expiration of the non-call period resulted in the Company losing control over the most significant activity of CLO III as it cannot unilaterally direct this activity. The Company deconsolidated CLO III as of

January 17, 2019.

The Company continues to hold approximately

47%

of the outstanding subordinated notes of CLO III and accounts for its ownership of the CLO III subordinated notes as an investment in a debt security. The Company recognized a gain of

$1.6

million as revenue from principal transactions on the deconsolidation of CLO III in

March 2019.

March 19, 2019,

the Company sold a

50.1%

equity interest in 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. The Company retained

45.0%

of the equity interest in JMPCA. The sale of JMPCA was considered a reconsideration event as defined in Accounting Standard Codification (“ASC”)

810,

Consolidation

, which requires a new consolidation analysis, and the Company determined that JMPCA is a VIE after the transaction date. The Company determined that it was

not

the primary beneficiary of JMPCA as the Company is

not

the party with the power to direct the most significant activities of JMPCA. As the Company determined that it is

not

the primary beneficiary, the Company deconsolidated JMPCA as of the date of sale. As the Company retained

45.0%

of the equity interest of JMPCA and has significant influence, the Company has determined that it is required to account for its retained interest as an equity method investment, however the Company has made the election to apply the fair value option to this investment. The Company received a cash payment of

$0.3

million in consideration for the limited liability company interest sold and recorded a gain of

$3.4

million on deconsolidation as revenue from principal transactions. The Company will receive a portion of the subordinated management fees from the CLOs JMPCA managed as of the date of the sale. After the sale, JMPCA was renamed Medalist Partners Corporate Finance LLC (“MPCF”).

The sale of JMPCA also required Medalist to provide additional capital to purchase an equity interest in JMP Credit Advisors Long-Term Warehouse Ltd (“CLO VI”) to finance the acquisition of broadly syndicated corporate loans. On

March 19, 2019,

Medalist related entities purchased

66%

of the outstanding equity interest of CLO VI for

$7.6

million. There was

gain or loss recognized on the sale of the equity interest.

After the sale of JMPCA, the Company lost the ability to direct the most significant activities of the following VIEs: JMP Credit Advisors CLO IV Ltd (“CLO IV”), JMP Credit Advisors CLO V Ltd (“CLO V”), and CLO VI (collectively with CLO III, the “CLOs”) and as a result, deconsolidated the aforementioned

CLOs as of

March 19, 2019 (

except CLO III which was deconsolidated on

January 17, 2019).

Previously the Company concluded that it was the primary beneficiary of CLO IV, CLO V, and CLO VI through its control over JMPCA and its ownership of

100%

of the equity interests of these CLOs. 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 as of

December 31, 2019.

The Company owned

100%

and

25%

of the senior subordinated notes of CLO IV and CLO V, respectively, as of 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 an investment in a debt security and accounts for its ownership of the CLO VI equity interest as an equity investment. The Company classifies the junior subordinated notes of CLO IV and CLO V as available-for-sale securities and classified the senior subordinated notes as trading securities. Collectively, the Company recognized a loss on the deconsolidation of CLO IV, CLO V, and CLO VI of

$1.8

million in

March 2019

in revenues from principal transactions. The Company recorded a loss of

$0.1

million on the sale of the senior subordinated notes of CLO IV and CLO V in

May 2019

in revenues from principal transactions.

The deconsolidation of the CLOs and JMPCA was accounted for based on the guidance in ASC

810,

Consolidation

. According to that guidance, the gain or loss on deconsolidation is calculated as the difference between (i) the aggregate of the fair value of the retained interest in the former subsidiaries, the fair value of any consideration received, and the carrying value of the non-controlling interest in the former subsidiaries; and (ii) the carrying value of the assets and liabilities of the former subsidiaries. The gain recognized by the Company is primarily the result of the remeasurement of the retained interest in the CLOs and JMPCA. The difference between these was recorded as a gain on deconsolidation in the Consolidated Statements of Operations under principal transactions revenue. The following table represents the consideration received, the fair value of the retained interest, and the resulting gain on deconsolidation of the CLOs and JMPCA:

Cash received	$	7,942
Retained interest, at fair value (1)		74,989
Non-controlling interest, as book value		12,842
Total of consideration received, retained interest, and non-controlling interest	$	95,773
Less:
Net assets of deconsolidated subsidiaries at carrying value (2)		92,581
Gain on deconsolidation		3,192
Gain on remeasurement of CLO IV and CLO V senior subordinated notes		328
Total gain on deconsolidation	$	3,520

	( 1 )	The fair value of the Company's retained interest in CLO III, CLO IV, CLO V, CLO VI, and JMPCA as of the deconsolidation date was $13.3 million, $27.8 million, $26.5 million, $3.8 million, and $3.6 million, respectively
	( 2 )	The book value of the net assets of CLO III, CLO IV, CLO V, CLO VI, and JMPCA as of the deconsolidation date was $24.5 million, $30.2 million, $25.8 million, $11.6 million, and $0.5 million, respectively

August 8, 2019,

Medalist closed a refinancing of the asset-backed securities issued by CLO IV, which lowered the weighted average cost of funds. The refinancing of CLO IV had

impact on the Company's accounting for the investment in the CLO IV debt securities including the decision to deconsolidate CLO IV.

September

26,

2019,

the Company issued

$36.0

million of

6.875%

senior notes (the

“2019

Senior Notes”). The

2019

Senior Notes will mature on

September 30, 2029,

may

be redeemable in whole or in part at any time or from time to time at JMP Group LLC’s option on or after

September 30, 2021,

at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The notes bear interest at a rate of

6.875%

per year, payable quarterly on

March 30,

June 30,

September 30,

and

December 30

of each year, and commencing on

December 30, 2019.

September 27, 2019

the Company announced JMP Group Inc.'s intention to redeem the JMP Group Inc. outstanding

8.00%

senior notes (the

“2013

Senior Notes”) on

October 28, 2019.

The Company opted to pay the principal and contractually owed interest to the trustee, U.S. Bank National Association, in order to satisfy and discharge the debt as of

September 27, 2019.

September 27, 2019

the Company deposited sufficient funds with the trustee to satisfy and discharge the

2013

Senior Notes and the trustee acknowledged such satisfaction and discharge. In connection with the redemption, the Company recorded losses on early retirement of debt related to unamortized bond issuance costs of

$0.5

million and recognized an additional

$0.2

million of interest expense on the accelerated repayment during

2019.