7.	Selected Balance Sheet Data

Other Assets

Other assets consisted of the following (in thousands):

 

		Current								Non-Current
		March 31, 2019				December 31, 2018				March 31, 2019				December 31, 2018
Mortgage servicing rights (“MSRs”), net of amortization		$	—			$	—			$	2,203			$	2,209
Due from independent contractors, net (1) (2)			2,335				3,831				35,421				27,157
Security deposits			—				—				1,212				1,196
Employee notes receivable (3)			151				156				263				370
Customer trust accounts and other			3,545				2,381				849				846
		$	6,031			$	6,368			$	39,948			$	31,778

 

(1)	Represents amounts advanced, notes receivable and other receivables due from the Company’s investment sales and financing professionals. The notes receivable along with interest are typically collected from future commissions and are generally due in one to five years.

(2)

Includes allowance for doubtful accounts related to current receivables of $407 and $514 as of March 31, 2019 and December 31, 2018, respectively. The Company recorded a recovery for bad debt expense of $(104) and $(106) and wrote-off $3 and $51 of these receivables for the three months ended March 31, 2019 and 2018, respectively. Any cash receipts on notes are applied first to unpaid principal balance prior to any income being recognized.

(3)	Reduction of accrued bonuses and other employee related expenses in settlement of employee notes receivable were $60 and $131 for the three months ended March 31, 2019 and 2018, respectively. See Note 9 – “Related-Party Transactions” for additional information.

 

MSRs

The net change in the carrying value of MSRs consisted of the following (in thousands):

 

		March 31, 2019				December 31, 2018
Beginning balance		$	2,209			$	—
Additions from acquisition			—				2,121
Additions			129				391
Amortization			(135	)			(303	)
Ending balance		$	2,203			$	2,209

The portfolio of loans serviced by the Company aggregated $1.6 billion for each of the periods of March 31, 2019 and December 31, 2018, respectively.

In connection with MSRs activities, the Company holds funds in escrow for the benefit of the lenders. These funds, which totaled $2.2 million and $2.1 million as of March 31, 2019 and December 31, 2018, respectively and the offsetting obligations, are not presented in the Company’s condensed consolidated financial statements as they do not represent assets and liabilities of the Company. Revenue from the fees on such accounts is included in financing revenue in the condensed consolidated statements of net and comprehensive income.

Deferred Compensation and Commissions

Deferred compensation and commissions consisted of the following (in thousands):

 

		Current								Non-Current
		March 31, 2019				December 31, 2018				March 31, 2019				December 31, 2018
Stock appreciation rights (“SARs”) liability (1)		$	1,969			$	1,810			$	17,630			$	19,299
Commissions payable to investment sales and financing professionals			22,504				44,812				11,883				23,983
Deferred compensation liability (1)			1,450				1,288				7,393				6,605
		$	25,923			$	47,910			$	36,906			$	49,887

 

(1)

The SARs and deferred compensation liability become subject to payout as a result of a participant no longer being considered as a service provider. As a result of the retirement of certain participants, estimated amounts to be paid to the participants within the next twelve months have been classified as current.

SARs Liability

Prior to the IPO, certain employees of the Company were granted SARs under a stock-based compensation program assumed by MMC. In connection with the IPO, the SARs agreements were revised, the MMC liability of $20.0 million for the SARs was frozen as of March 31, 2013, and was transferred to MMI through a capital distribution. The SARs liability will be settled with each participant in ten annual installments in January of each year upon retirement or termination from service, or in full upon consummation of a change in control of the Company.

Under the revised agreements, MMI is required to accrue interest on the outstanding balance beginning on January 1, 2014 at a rate based on the 10-year treasury note plus 2%. The rate resets annually. The rates at January 1, 2019 and 2018 were 4.684% and 4.409%, respectively. MMI recorded interest expense related to this liability of $226,000 and $225,000, for the three months ended March 31, 2019 and 2018, respectively.

Estimated payouts within the next twelve months for participants that have separated from service have been classified as current. During the three months ended March 31, 2019 and 2018, the Company made total payments of $1.7 million (consisting of principal and accumulated interest) and $1.5 million, respectively (consisting of accumulated interest).

Commissions Payable

Certain investment sales professionals have the ability to earn additional commissions after meeting certain annual revenue thresholds. These commissions are recognized as cost of services in the period in which they are earned as they relate to specific transactions closed. The Company has the ability to defer payment of certain commissions, at its election, for up to three years. Commissions payable that are not expected to be paid within twelve months are classified as long-term.

 

Deferred Compensation Liability

A select group of management is eligible to participate in the Marcus & Millichap Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is a non-qualified deferred compensation plan that is intended to comply with Section 409A of the Internal Revenue Code and permits participants to defer compensation up to limits set forth in the Deferred Compensation Plan. Amounts are paid out generally when the participant is no longer a service provider; however, an in-service payout election is available to participants. Participants may elect to receive payouts as a lump sum or quarterly over a two to fifteen-year period. The Company elected to fund the Deferred Compensation Plan through company owned variable life insurance policies. The Deferred Compensation Plan is managed by a third-party institutional fund manager, and the deferred compensation and investment earnings are held as a Company asset in a rabbi trust, which is recorded in assets held in rabbi trust in the accompanying condensed consolidated balance sheets. The assets in the trust are restricted unless the Company becomes insolvent, in which case the trust assets are subject to the claims of the Company’s creditors. The Company may also, in its sole and absolute discretion, elect to withdraw at any time a portion of the trust assets by an amount by which the fair market value of the trust assets exceeds 110% of the aggregate deferred compensation liability represented by the participants’ accounts. Estimated payouts within the next twelve months for participants that have separated from service have been classified as current. During the three months ended March 31, 2019 and 2018, the Company made total payments to participants of $315,000 and $193,000, respectively.

The net change in the carrying value of the assets held in the rabbi trust and the net change in the carrying value of the deferred compensation liability, each exclusive of additional contributions, distributions and trust expenses, consisted of the following (in thousands):

 

		Three Months Ended March 31,
		2019				2018
Increase in the carrying value of the assets held in the rabbi trust (1)		$	703			$	14
Increase in the net carrying value of the deferred compensation obligation (2)		$	685			$	—

 

(1)	Recorded in other income (expense), net in the condensed consolidated statements of net and comprehensive income.

(2)	Recorded in selling, general and administrative expense in the condensed consolidated statements of net and comprehensive income.

Deferred Rent and Other Liabilities

Deferred rent and other liabilities consisted of the following (in thousands):

 

		Non-Current
		March 31, 2019				December 31, 2018
Deferred rent and other (1)		$	—			$	5,445
Contingent consideration (2)			2,097				2,054
		$	2,097			$	7,499

 

(1)	The Company does not have deferred rent as of March 31, 2019 due to adoption of the new lease standard on January 1, 2019.

(2)	The current portions of contingent consideration in the amounts of $826 and $821 as of March 31, 2019 and December 31, 2018, respectively, are included in accounts payable and other liabilities in the condensed consolidated balance sheets.