1. Organization and Description of Business

 

       JMP Group LLC, together with its subsidiaries (collectively, the “Company”), is a diversified capital markets 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”). 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”). 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. JMPCA currently manages three collateralized loan obligations (“CLO”) vehicles. The Company completed a Reorganization Transaction in January 2015 pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Group LLC (the “Reorganization Transaction”). The Company entered into a Contribution Agreement in November 2017 pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Investment Holdings, which is a wholly-owned subsidiary of JMP Group LLC. 

 

Recent Transactions

 

In February 20, 2018, the Company closed a refinancing of the asset back securities issued by JMP Credit Advisors CLO III Ltd ("CLO III"), which lowered the weighted average cost of funds by 55 basis points and extended the reinvestment period for two years. In connection with the refinancing, the Company recorded losses on early retirement of debt related to unamortized debt issuance costs of $2.6 million for the quarter ended March 31, 2018.

 

On July 26, 2018, entities sponsored by JMP Group LLC closed a $407.8 million CLO. The senior notes offered in this transaction (the "Secured Notes") were issued by JMP Credit Advisors CLO V Ltd. ("CLO V"), a special purpose Cayman vehicle, and co-issued by JMP Credit Advisors CLO V LLC, a special purpose Delaware vehicle, and were backed by a diversified portfolio of broadly syndicated leveraged loans. The Secured Notes were issued in multiple tranches and are rated by Moody's Investors Service, Inc. The Company, through a wholly-owned subsidiary, retained 100% of the junior subordinated notes and 25% of the senior subordinated notes, which are not rated. JMPCA serves as collateral manager of CLO V under a collateral management agreement.

 

On October 11, 2018, the Company established, through its affiliate, JMP Credit Advisors Long-Term Warehouse Ltd., a Cayman Islands vehicle (the “Borrower”), and the Borrower's subsidiary, JMP Credit Advisors CLO VI Warehouse Ltd., a Cayman Islands vehicle (together with the Borrower, the Borrower Entities"), a $100 million revolving credit facility (the “Facility”) with BNP Paribas to finance the acquisition of a portfolio of broadly syndicated corporate loans. JMPCA will act as collateral manager with duties including the selection of assets to be acquired by the Borrower Entities. All borrowings under the Facility will be subject to the satisfaction of certain customary covenants, the accuracy of certain representations and warranties, concentration limitations and other restrictions. The Facility will be primarily secured by a portfolio of broadly syndicated corporate loans that are eligible for acquisition by the Borrower Entities. The Borrower Entities are collectively subject to mandatory prepayments under the Facility upon the occurrence of certain events. In addition, the Borrower may make optional prepayments under the Facility. The Facility is structured to have a revolving period of up to three years ending October 11, 2021, and a twelve-month amortization period. The Facility will have a market standard advance rate, and any outstanding balances will bear interest at standard market interest rates based on LIBOR.

 

 

 

 

 

2. Summary of Significant Accounting Policies 

 

Basis of Presentation

 

These consolidated financial statements and related notes are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2017 (the “Annual Report”). The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.

 

The consolidated accounts of the Company include the wholly-owned subsidiaries and the partially-owned subsidiaries of which we are the majority owner or the primary beneficiary. All material intercompany accounts and transactions have been eliminated in consolidation. Non-controlling interests on the Consolidated Statements of Financial Condition as of September 30, 2018 and December 31, 2017 relate to the interest of third parties in the partially-owned subsidiaries. Certain prior year amounts have been reclassified to conform to current year presentation.

 

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

 

For the nine months ended September 30, 2018, there were no significant changes made to the Company’s significant accounting policies other than those described below. The accounting policy changes are attributable to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company adopted this standard on January 1, 2018 using a modified retrospective approach. Accordingly, the new revenue standard was applied prospectively in the Company’s financial statements from January 1, 2018 forward and reported financial information for historical comparable periods was not revised and will continue to be reported under the accounting standards in effect during those historical periods.

 

Refer to Note 3, Recent Accounting Pronouncements, for additional information.

 

 

 

 

3. Recent Accounting Pronouncements

 

 Accounting Standards to be Adopted in Future Periods

 

ASU 2016-02, Leases (Topic 842), was issued in February 2016, with subsequent amendments, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing information about leasing arrangements. The standard requires lessees to recognize the assets and liabilities arising from operational leases on the balance sheet. ASU 2016-02 will become effective for fiscal years beginning after December 15, 2018. Upon adoption, the Company expects to recognize its lease agreements as a right-to-use asset with a corresponding lease liability to reflect the present value of the future lease payments. The Company is evaluating the impact of the adoption of this standard.

 

ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), was issued in June 2016 to replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This standard will become effective for fiscal years beginning after December 31, 2019. The Company is evaluating the impact of the adoption of this standard.

 

ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Sub-topic 310-20): Premium Amortization on Purchased Callable Debt Securities, was issued in March 2017 to shorten the amortization period for certain purchased callable debt securities held at a premium. It requires the premium to be amortized over the period until the earliest call date. The amendment does not make any changes for securities held at a discount. The new guidance will be effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of the adoption of this standard.

 

ASU 2018-13, Fair Value Measurement (Topic 820), was issued in August 2018 as part of the disclosure framework project to improve the effectiveness of the disclosures in the notes to the financial statements. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The new guidance will be effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is evaluating the impact of the adoption of this standard.

 

Recently Adopted Accounting Guidance

 

ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Sub-topic - 825-10) was issued in February 2018 to address the questions raised by stakeholders to clarify the guidance issued in ASU 2016-01. The Financial Accounting and Standards Board amended the guidance on using the measurement alternative for equity securities without readily determinable fair value and clarifies the presentation requirements for entities that elect the fair value option. The amendments in the update are effective for public business entities for fiscal periods beginning after December 15, 2017, and interim periods beginning after June 15, 2018. The adoption of ASU 2018-03 did not have a material impact on the company's financial statements.

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606), was issued in May 2014, with subsequent amendments, to provide a more robust framework for addressing revenue issues, and to clarify the implementation guidance on principal versus agent considerations. The standard is effective for annual reporting periods beginning after December 15, 2017 and allows either a full retrospective or modified retrospective approach. The Company adopted this standard on January 1, 2018 using a modified retrospective approach. Accordingly, the new revenue standard will be applied prospectively in the Company’s financial statements from January 1, 2018 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods. The new standard does not apply to revenue from financial instruments, including loans and securities, and as a result, did not have an impact on revenues closely associated with financial instruments, including principal transactions, interest income, and interest expense. The new standard primarily impacts the presentation of our investment banking revenues, specifically our underwriting revenues, strategic advisory revenues, and private placement fees. Certain investment banking revenues have historically been presented net of related expenses. Under the new standard, revenues and expenses related to investment banking transactions are presented gross in the Consolidated Statements of Operations.

 

For the quarter ended September 30, 2018, there was no significant impact as a result of adoption of the new revenue standard to our consolidated financial statements. The new revenue standard primarily impacted the presentation of our investment banking revenue and expenses. The table below presents the impact to revenues and expenses as a result of the change in presentation of investment banking expenses:

 

		Three Months Ended September 30, 2018												Nine Months Ended September 30, 2018
(in thousands)
		As Reported				ASC 606 Impact				Pre-Adoption (1)				As Reported				ASC 606 Impact				Pre-Adoption (1)
Revenues
Investment banking		$	21,095			$	913			$	20,182			$	70,319			$	5,643			$	64,676
Total non-interest revenues			30,012				913				29,099				99,857				5,643				94,214
Total net revenues after provision for loan losses			33,251				913				32,338				104,726				5,643				99,083
Expenses
Travel and business development			1,080				299				781				3,236				928				2,308
Managed deal expenses			614				614				-				4,528				4,528				-
Professional fees			1,272				-				1,272				4,315				187				4,128
Total non-comp expenses			8,942				913				8,029				30,647				5,643				25,004
Total non-interest expenses			31,613				913				30,700				106,717				5,643				101,074

 

(1)

Amounts reflect each impacted consolidated financial statement line item as they would have been reported under accounting principles generally accepted in the United States of America prior to the adoption of the new revenue standard.

 

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Sub-topic 825-10), was issued in January 2016. The amendments address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. They require equity securities that are neither accounted by equity method nor consolidated to be measured at fair value with changes of fair values recognized as net income. Those equity securities that do not have readily determinable fair value  may be measured at cost less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. In addition, the amendments simplify the impairment assessment of equity investments without determinable fair values by requiring a qualitative assessment at each reporting period. This standard was effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of ASU 2016-01 did not have a material impact on the Company’s financial statements.

 

ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230), was issued in August 2016 to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this standard are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of ASU 2016-15 did not have a material impact on the Company’s financial statements.

 

ASU 2016-16, Income Taxes (Topic 740), was issued in October 2016 to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory and to reduce the complexity/cost in accounting standards. The Financial Accounting Standards Board decided to recognize the income tax consequences to intra-entity transfers when the transfer occurs. The amendment is effective for annual reporting periods beginning after December 15, 2017 including interim reporting periods within those annual reporting periods. Early adoption is permitted and is applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the period of adoption. The adoption of ASU 2016-16 did not have a material impact on the Company’s financial statements.

 

ASU 2016-18, Statement of Cash Flows (Topic 230) addresses the diversity that exists in the classification and presentation of changes in restricted cash and transfers between cash and restricted cash on the statement of cash flows. The amendment applies to all entities that report restricted cash or restricted cash equivalents and present a statement of cash flows. The provisions of this update require the explanation of the changes during the period. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Additionally, early adoption is permitted with a retrospective transition method and all adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2016-18 resulted in a decrease of cash used in operating activities of $1.3 million and a decrease in cash provided by investing activities of $167.0 million for the nine months ended September 30, 2017.

 

 

4. Fair Value Measurements

 

The following tables provide fair value information related to the Company’s financial instruments at September 30, 2018 and December 31, 2017:

 

		September 30, 2018
(In thousands)		Carrying Value				Fair Value
						Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents		$	73,143			$	73,143			$	-			$	-			$	73,143
Restricted cash and deposits			48,586				48,586				-				-				48,586
Marketable securities owned			20,194				20,194				-				-				20,194
Other investments (1)			868				-				868				-				868
Other investments measured at net asset value (1)			8,304				-				-				-				-
Loans held for investment, net of allowance for loan losses			5,606				-				1,325				3,673				4,998
Loans collateralizing asset-backed securities issued, net of allowance for loan losses			1,164,404				-				1,171,526				1,271				1,172,797
Total assets:		$	1,321,105			$	141,923			$	1,173,719			$	4,944			$	1,320,586
Liabilities:
Marketable securities sold, but not yet purchased		$	5,604			$	5,604			$	-			$	-			$	5,604
Notes payable			829				-				829				-				829
Asset-backed securities issued, net of debt issuance costs			1,112,049				-				1,120,691				-				1,120,691
Bond payable			83,395				87,201				-				-				87,201
Total liabilities:		$	1,201,877			$	92,805			$	1,121,520			$	-			$	1,214,325

 

 

		December 31, 2017
(In thousands)		Carrying Value				Fair Value
						Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents		$	85,594			$	85,594			$	-			$	-			$	85,594
Restricted cash and deposits			51,727				51,727				-				-				51,727
Marketable securities owned			20,825				20,825				-				-				20,825
Receivable from clearing broker			6,801				6,801				-				-				6,801
Other investments (1)			10,226				-				10,226				-				10,226
Other investments measured at net asset value (1)			8,224				-				-				-				-
Loans held for investment, net of allowance for loan losses			83,948				-				80,956				3,342				84,298
Loans collateralizing asset-backed securities issued, net of allowance for loan losses			765,583				-				766,298				-				766,298
Total assets:		$	1,032,928			$	164,947			$	857,480			$	3,342			$	1,025,769
Liabilities:
Marketable securities sold, but not yet purchased		$	7,919			$	7,919			$	-			$	-			$	7,919
Asset-backed securities issued, net of debt issuance costs			738,248				-				748,015				-				748,015
Bond payable			93,103				-				97,014				-				97,014
CLO V warehouse credit facility			61,250				-				61,250				-				61,250
Total liabilities:		$	900,520			$	7,919			$	906,279			$	-			$	914,198

 

(1)

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

 

Recurring Fair Value Measurement

 

The following tables provide information related to the Company’s assets and liabilities carried at fair value on a recurring basis at September 30, 2018 and December 31, 2017: 

 

(In thousands)						September 30, 2018
		Carrying Value				Level 1				Level 2				Level 3				Total
Marketable securities owned		$	20,194			$	20,194			$	-			$	-			$	20,194
Other investments:
Investments in hedge funds managed by the Company			868				-				868				-				868
Investments in other funds managed by the Company (1)			4,870				-				-				-				-
Total investment in funds managed by the Company (1)			5,738				-				868				-				868
Limited partnership in investments in private equity/ real estate funds (1)			3,434				-				-				-				-
Total other investments			9,172				-				868				-				868
Total assets:		$	29,366			$	20,194			$	868			$	-			$	21,062
Marketable securities sold, but not yet purchased		$	5,604			$	5,604			$	-			$	-			$	5,604
Total liabilities:		$	5,604			$	5,604			$	-			$	-			$	5,604

 

(1)

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

 

 

(In thousands)						December 31, 2017
		Carrying Value				Level 1				Level 2				Level 3				Total
Marketable securities owned		$	20,825			$	20,825			$	-			$	-			$	20,825
Other investments:
Investments in hedge funds managed by the Company			10,226				-				10,226				-				10,226
Investments in other funds managed by the Company (1)			4,463				-				-				-				-
Total investment in funds managed by the Company (1)			14,689				-				10,226				-				10,226
Limited partnership in investments in private equity/ real estate funds (1)			3,761				-				-				-				-
Total other investments			18,450				-				10,226				-				10,226
Total assets:		$	39,275			$	20,825			$	10,226			$	-			$	31,051
Marketable securities sold, but not yet purchased		$	7,919			$	7,919			$	-			$	-			$	7,919
Total liabilities:		$	7,919			$	7,919			$	-			$	-			$	7,919

 

(1)

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

 

Transfers between levels of the fair value hierarchy result from changes in the observability of fair value inputs used in determining fair values for different types of financial assets and are recognized at the beginning of the reporting period in which the event or change in circumstances that caused the transfer occurs. The Company’s policy is to recognize the fair value of transfers among Levels 1, 2 and 3 as of the end of the reporting period. For recurring fair value measurements, there were no transfers between Levels 1, 2 and 3 for the three and nine months ended September 30, 2018 and year ended December 31, 2017.

 

The Company’s Level 2 assets held in other investments consist of investments in hedge funds managed by HCS. The carrying value of investments in hedge funds is calculated using the equity method and approximates fair value. Earnings or losses attributable to these investments are recorded in principal transactions. 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 Company’s proportionate share of those investments is included in the tables above.

 

The investments in private equity funds managed by HCS and JMPAM are recognized using the fair value option. The Company uses the reported net asset value per share as a practical expedient to estimate the fair value of the funds. The risks associated with these investments are limited to the amounts of invested capital, remaining capital commitment and any management and incentive fees receivable.

 

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

 

The Company determined the fair value of loans collateralizing asset-backed securities and loans held for investment identified as Level 2 assets primarily using the average market bid and ask quotation obtained from a loan pricing service. The valuations are received from a pricing service to which the Company subscribes. The pricing service's analysis incorporates comparable loans traded in the marketplace, the obligors industry, future business prospects, capital structure, and expected credit losses. Significant declines in the performance of the obligor would result in decrease to the fair value measurement. The fair value of loans held for investment identified as Level 3 assets are determined using the discounted cash flow model using the treasury rate, loan interest rate, and an internally generated risk rate.

 

The Company determined the fair value of asset-backed securities issued based upon pricing from published market research for equivalent-rated CLO notes. Based on the fair value methodology, the Company has identified the asset-backed securities issued as Level 2 liabilities.

 

As of both September 30, 2018 and December 31, 2017, $7.9 million of assets were measured using the net asset value as a practical expedient. Investments for which fair value was estimated using net asset value as a practical expedient were as follows:

 

							Fair Value at								Unfunded Commitments
Dollars in thousands		Redemption Frequency		Redemption Notice Period			September 30, 2018				December 31, 2017				September 30, 2018				December 31, 2017
Limited partner investments in private equity/ real estate funds		Nonredeemable		N/A			$	3,434			$	3,761			$	2,013			$	3,279
Investment in other funds managed by the Company		Nonredeemable		N/A			$	4,870			$	4,173			$	-			$	-

 

 

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 loans measured at fair value on a non-recurring basis of $1.6 million and $2.0 million as of September 30, 2018 and December 31, 2017, respectively.

 

Loans Held for Investment

 

 At September 30, 2018 and December 31, 2017, the number of loans held for investment outside of the CLO portfolios were six and ten, respectively. The Company reviews credit quality of these 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 loans.

 

There were no loans past due as of September 30, 2018, and there was one loan past due as of December 31, 2017. A summary of activity in loan losses for the three and nine months ended September 30, 2018 and 2017 is as follows:

 

(in thousands)		Three Months Ended September 30,																Nine Months Ended September 30,
		2018								2017								2018								2017
		Impaired				Non-impaired				Impaired				Non-impaired				Impaired				Non-impaired				Impaired				Non-impaired
Balance, at beginning of the period		$	-			$	(1,746	)		$	(2,413	)		$	-			$	(2,279	)		$	(494	)		$	(823	)		$	-
Provision for loan losses
Specific			(149	)			-				(734	)			-				(353	)			-				(1,465	)			-
General			-				-				-				(49	)			-				(1,278	)			-				(49	)
Charge off			-				-				996				-				2,483				26				1376				-
Transfers to (from) loans collateralizing asset-backed securities			-				1,746				-				-				-				1,746				(1,239	)			-
Balance, at end of the period		$	(149	)		$	-			$	(2,151	)		$	(49	)		$	(149	)		$	-			$	(2,151	)		$	(49	)

 

A loan is considered to be impaired when, based on current information, it is probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the original loan agreement, including scheduled principal and interest payments. As of September 30, 2018 and December 31, 2017, $0.5 million and $1.4 million of recorded investment amount of loans issued were individually evaluated for impairment, respectively. 

 

As of September 30, 2018 and December 31, 2017, the Company classified all its loans as Cash Flow loans, as their funding decisions were all primarily driven by the cash flows of the borrower. The table below presents certain information pertaining to the loans on non-accrual status as of September 30, 2018 and December 31, 2017:

 

(in thousands)		Recorded Investment				Unpaid Principal				Related Allowance				Average Recorded Investment				Interest Income Recognized
September 30, 2018
Impaired loans with an allowance recorded		$	467			$	489			$	149			$	467			$	22
Impaired loans with no related allowance recorded			-				-				-				-				-
Total impaired loans		$	467			$	489			$	149			$	467			$	22

 

(in thousands)		Recorded Investment				Unpaid Principal				Related Allowance				Average Recorded Investment				Interest Income Recognized
December 31, 2017
Impaired loans with an allowance recorded		$	1,379			$	1,448			$	391			$	1,411			$	32
Impaired loans with no related allowance recorded			-				-				-				-				-
Total impaired loans		$	1,379			$	1,448			$	391			$	1,411			$	32

 

 

The Company's management, at least on a quarterly basis, reviews each loan and evaluates the credit quality of the loan. The review primarily includes the following credit quality indicators with regard to each loan: 1) Moody's rating, 2) current internal rating, 3) trading price of the loan, and 4) performance of the obligor. The tables below present, by credit quality indicator, the Company's recorded investment in loans held for investment at September 30, 2018 and December 31, 2017:

 

(In thousands)		Cash Flow Loans
		September 30,				December 31,
		2018				2017
Moody's rating:
Baa1 - Baa3		$	-			$	-
Ba1 - Ba3			-				12,174
B1 - B3			-				64,170
Caa1 - Caa3			2,468				5,310
Not Rated			3,336				4,595
Total:		$	5,804			$	86,249
Internal rating (1) :
2		$	918			$	77,525
3			-				384
4			1,978				2,613
5			489				1,379
Not rated			2,419				4,348
Total:		$	5,804			$	86,249
Performance:
Performing		$	5,300			$	83,161
Non-performing			504				3,088
Total:		$	5,804			$	86,249

 

(1)	Loans with an internal rating of 3 or below are reviewed individually to identify loans to be designated for non-accrual status.