JMP Group LLC (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter ended June 30, 2017.
- The net loss attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $8.5
million, or $0.39 per diluted share, compared to a net loss of $0.3
million, or $0.02 per share, for the quarter ended June 30, 2016.
For the six months ended June 30, 2017, the GAAP net loss was $13.3
million, or $0.61 per share, compared to net income of $1.5
million, or $0.07 per share, for the six months ended June 30,
2016.
- Total net revenues on a GAAP basis were
$23.1 million and $47.5 million for the quarter and six months
ended June 30, 2017, respectively, compared to $29.7 million and
$68.3 million for the quarter and six months ended June 30, 2016,
respectively.
- Operating net income was $0.6 million,
or $0.03 per diluted share, compared to $2.6 million, or $0.12
per share, for the quarter ended June 30, 2016. For the six months
ended June 30, 2017, the operating net loss was $1.5 million, or
$0.07 per share, compared to operating net income of
$4.7 million, or $0.22 per share, for the six months ended
June 30, 2016. For more information about operating net income,
including a reconciliation to net income attributable to JMP Group,
see the section below titled “Non-GAAP Financial Measures.”
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were $31.0
million and $56.3 million for the quarter and six months ended June
30, 2017, respectively, compared to $28.4 million and $65.0 million
for the quarter and six months ended June 30, 2016, respectively.
For more information about adjusted net revenues, including a
reconciliation to net revenues, see the section below titled
“Non-GAAP Financial Measures.”
“Our operating EPS of $0.03 for the second quarter improved
materially from the first quarter, primarily due to a pick-up in
equity capital markets fees and the absence of any unusual losses
on our principal investing activities,” said Chairman and Chief
Executive Officer Joe Jolson. “Our investment banking revenues of
$19.1 million were our highest in two years and were driven by
$12.4 million of ECM fees, compared to $6.9 million in the prior
quarter and just $2.9 million a year ago. JMP Securities
contributed $0.05 to operating EPS, versus just $0.01 for the first
quarter of this year. We are optimistic about JMP Securities’
second-half prospects, given the improved equity capital markets
environment and the transaction closings we expect from our solid
M&A pipeline.
“Most of the GAAP net loss for the quarter can be attributed to
our decision to take advantage of an improving CLO debt market to
refinance the funding of our corporate loan portfolios, which will
benefit future operating earnings but resulted in a substantial
charge for the early retirement of our CLO-related debt. At
quarter-end, we had $2.18 per share in investable cash that we
continue to work hard to redeploy. Along these lines, we recently
established a new warehouse lending facility in order to begin
accumulating loans for another collateralized loan obligation.
Assuming stable market conditions, we would hope to close JMP
Credit Advisors CLO V in the next six to twelve months, reinvesting
much of our excess cash back into our corporate credit
segment.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $24.2 million, an increase of 70.6% from $14.2
million for the second quarter of 2016. JMP Securities’ operating
margin on adjusted net revenues was 7.2%, compared to a negative
margin of -14.9% for the second quarter of 2016.
The asset management segment reported adjusted net revenues of
$4.9 million, a decrease of 22.3% from $6.2 million for the second
quarter of 2016. Excluding incentive fees that are no longer
recognized at the asset management segment, adjusted net revenues
would have been $5.4 million for the second quarter of 2016,
resulting instead in a year-over-year decrease of 9.8%.
JMP Group’s principal investment activities generate net
investment income, which has historically more than covered
corporate expenses and has contributed to operating earnings
through net corporate income. After calling JMP Credit Advisors CLO
I in December 2016 and redeeming capital from hedge funds managed
by Harvest Capital Strategies in the past year, JMP Group operated
with an unusually large investable cash balance in the first half
of 2017. As a result, for the second quarter, the company reported
net corporate expense of $0.2 million, significantly less than
the expense of $2.4 million for the first quarter but well below
the net corporate income of $1.5 million (excluding the gain on the
sale of RiverBanc LLC) for the second quarter of 2016.
A summary of JMP Group’s operating net income per share by
segment for the quarter ended June 30, 2017, and for comparable
prior periods is set forth below.
Quarter Ended Six Months Ended ($ as
shown) June 30, 2017 Mar. 31, 2017 June
30, 2016 June 30, 2017 June 30, 2016 Broker-dealer
$0.05 $0.01 ($0.06) $0.06 $0.01 Asset management (0.01) 0.01 0.01
(0.01) 0.03 Operating platform EPS 0.04 0.02 (0.05) 0.05 0.04 Net
corporate income (0.01) (0.11) 0.17 (0.12) 0.18 Operating EPS
(diluted) $0.03 ($0.09) $0.12 ($0.07) $0.22
Note: Due to rounding, numbers in
columns above may not sum to totals presented.
For more information about segment reporting; adjusted net
revenues, including a reconciliation to net revenues; and operating
net income, including a reconciliation to net income, see the
section below titled “Non-GAAP Financial Measures.”
Composition of Revenues
Investment Banking
Investment banking revenues were $19.1 million and $32.7 million
for the quarter and six months ended June 30, 2017, respectively,
compared to $8.4 million and $26.7 million for the quarter and six
months ended June 30, 2016, respectively.
A summary of the company’s investment banking revenues and
transaction counts for the quarter ended June 30, 2017, and for
comparable prior periods is set forth below.
Quarter Ended Six Months Ended June 30,
2017 Mar. 31, 2017 June 30, 2016 June
30, 2017 June 30, 2016 ($ in thousands) Count
Revenues Count Revenues Count
Revenues Count Revenues Count Revenues
Equity and debt origination
37 $14,384 23 $10,470 14 $3,311 60 $24,854 24 $9,538
Strategic advisory and private
placements
4 4,744 3 3,130 7 5,064 7 7,874 11 17,133 Total 41 $19,128 26
$13,600 21 $8,375 67 $32,728 35 $26,671
Brokerage
Net brokerage revenues were $5.1 million and $10.4 million for
the quarter and six months ended June 30, 2017, respectively,
compared to $5.8 million and $11.9 million for the quarter and six
months ended June 30, 2016, respectively.
Total capital markets revenues, which consist of net brokerage
revenues produced by the institutional equities division in
addition to equity and debt origination revenues generated by the
investment banking division, were $19.5 million and $35.2 million
for the quarter and six months ended June 30, 2017, respectively,
compared to $9.1 million and $21.4 million for the quarter and six
months ended June 30, 2016, respectively.
Asset Management
Asset management fees were $4.2 million, compared to $5.6
million for the second quarter of 2016. For the six months ended
June 30, 2017, asset management fees were $10.1 million, including
$1.8 million of incentive fees, compared to $14.9 million,
including $6.1 million of incentive fees, for the six months ended
June 30, 2016.
Asset management-related fee revenues reflect asset management
fees, net of non-controlling interests in HCAP Advisors, as well as
certain fee revenues reported in the company’s financial statements
as other income. Asset management-related fee revenues were $4.2
million and $10.1 million for the quarter and six months ended
June 30, 2017, respectively, compared to $5.0 million and
$13.9 million for the quarter and six months ended June 30, 2016,
respectively. For more information about asset management-related
fee revenues, see the section below titled “Non-GAAP Financial
Measures.”
Client assets under management at June 30, 2017, totaled $2.0
billion, including $1.2 billion of funds managed by Harvest Capital
Strategies, JMP Asset Management and HCAP Advisors and
$0.8 billion par value of loans and cash managed by JMP Credit
Advisors. Client assets under management were $2.0 billion at
March 31, 2017, and $2.3 billion at June 30, 2016. Including
sponsored funds in which JMP Group owns an economic interest,
client assets under management totaled $3.4 billion at June 30,
2017.
At June 30, 2017, private capital, including corporate credit,
small business lending, venture capital and real estate-related
investments, represented 79.0% of client assets under management,
including sponsored funds.
Principal Transactions
Principal transactions generated a net realized and unrealized
loss of $0.3 million, compared to a net realized and unrealized
gain of $6.6 million for the second quarter of 2016, when the
company benefited from the sale of RiverBanc LLC, a multi-family
real estate fund manager in which JMP Group had been a founding
investor. For the six months ended June 30, 2017, principal
transactions generated a net realized and unrealized loss of $2.2
million, compared to a net realized and unrealized gain of $7.6
million for the six months ended June 30, 2016.
Adjusted principal transaction revenues exclude certain
unrealized market-to-market gains or losses, including those on JMP
Group’s investment in Harvest Capital Credit Corporation, as well
as unrealized losses derived from depreciation and amortization of
real estate investment properties. Adjusted principal transaction
revenues were $1.7 million and $2.3 million for the quarter and six
months ended June 30, 2017, respectively, compared to $8.2 million
and $9.1 million for the quarter and six months ended June 30,
2016, respectively. For more information about adjusted principal
transaction revenues, including a reconciliation to principal
transaction revenues, see the section below titled “Non-GAAP
Financial Measures.”
Early Retirement of Debt
In the second quarter of 2017, JMP Credit Advisors elected to
redeem the outstanding notes issued by JMP Credit Advisors CLO II
and to contribute the loans that had been underlying that structure
to a newly formed collateralized loan obligation, JMP Credit
Advisors CLO IV. The redemption of the debt associated with JMP
Credit Advisors CLO II accelerated the amortization of remaining
capitalized issuance costs in the amount of $5.5 million.
Net Interest Income
Net interest income was $2.0 million and $2.9 million for the
quarter and six months ended June 30, 2017, respectively,
compared to $4.0 million and $8.4 million for the quarter and six
months ended June 30, 2016, respectively. The year-over-year
declines were primarily due to materially lower average loan
balances in 2017 resulting from the ongoing deleveraging of JMP
Credit Advisors CLO I, which was fully liquidated in February
2017.
Provision for Loan Losses
The net loan loss provision for the quarter was $1.9 million,
including a specific provision of $0.5 million in connection
with impaired loans underlying certain collateralized loan
obligations managed by JMP Credit Advisors.
Expenses
Compensation and Benefits
Compensation and benefits expense was $22.7 million, compared to
$20.7 million for the second quarter of 2016. With regard to
annually awarded compensation, a concept which adjusts compensation
expense related to share-based awards and deferred compensation,
compensation and benefits expense was 72.4% of adjusted net
revenues, compared to 69.3% for the second quarter of 2016. Further
excluding specific loan loss provisions and compensation expense
related to hedge fund incentive fees, the compensation ratio was
71.4%, compared to 66.4% for the second quarter of 2016.
For the six months ended June 30, 2017, compensation and
benefits expense was $44.5 million, compared to $48.1 million for
the six months ended June 30, 2016. With regard to annually awarded
compensation, compensation and benefits expense was 76.3% of
adjusted net revenues, compared to 72.0% for the six months ended
June 30, 2016. Further excluding specific loan loss provisions and
compensation expense related to hedge fund incentive fees, the
compensation ratio was 73.3%, compared to 68.7% for the six months
ended June 30, 2016.
For more information about compensation ratios, see the section
below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $8.9 million and $16.7 million for
the quarter and six months ended June 30, 2017, respectively,
compared to $8.0 million and $15.8 million for the quarter and six
months ended June 30, 2016, respectively. The year-over-year
increases were primarily due to a shift in the timing of an annual
equity research conference hosted by JMP Securities, which was
moved from its traditional September date to a June date in
2017.
Share Repurchase Activity
JMP Group repurchased 74,532 shares of its common stock during
the quarter ended June 30, 2017. At quarter-end, 925,468 shares
remained eligible for repurchase under the company’s existing
authorization.
Personnel
At June 30, 2017, the company had 226 full-time employees,
compared to 224 at March 31, 2017, and 233 at June 30, 2016.
Non-GAAP Financial Measures
In addition to the GAAP financial results presented in this
press release, JMP Group presents the non-GAAP financial measures
discussed below. These non-GAAP measures are provided to enhance
investors’ overall understanding of the company’s current financial
performance. Furthermore, company management believes that this
presentation enables a more meaningful comparison of JMP Group’s
financial performance in various periods. However, the non-GAAP
financial results presented should not be considered a substitute
for results that are presented in a manner consistent with GAAP. A
limitation of the non-GAAP financial measures presented is that the
adjustments concern gains, losses or expenses that JMP Group
generally expects to continue to recognize. The adjustment of these
non-GAAP items should not be construed as an inference that these
gains or expenses are unusual, infrequent or non-recurring.
Therefore, both GAAP measures of JMP Group’s financial performance
and the respective non-GAAP measures should be considered together.
The non-GAAP measures presented herein may not be comparable to
similarly titled measures presented by other companies.
Adjusted Net Revenue
Adjusted net revenue is a non-GAAP financial measure that (i)
reverses the general loan loss provision taken with regard to
certain CLOs, (ii) excludes the impact of the early retirement of
debt issued by JMP Credit Advisors CLO II, (iii) reverses net
unrealized mark-to-market gains or losses on investments related to
deferred compensation, (iv) reverses unrealized losses derived from
depreciation and amortization of real estate investment properties,
(v) reverses net unrealized gains or losses on strategic equity
investments and warrants, and (vi) excludes non-controlling
interests in various sources of revenue that are consolidated
according to GAAP. In particular, adjusted net revenue adjusts
for:
- the non-specific loss provision
recorded with regard to loans held by JMP Credit Advisors
CLO II (while outstanding), JMP Credit Advisors CLO III and
JMP Credit Advisors CLO IV and to loans held for investment, which
is required by GAAP;
- the one-time expense associated with
the contribution of the loans underlying JMP Credit Advisors
CLO II to newly formed JMP Credit Advisors CLO IV and the
resulting acceleration of the amortization of remaining capitalized
issuance costs;
- unrealized mark-to-market gains or
losses on investments in the company’s hedge funds that are made on
behalf of employees who opt for such investments under the terms of
their deferred compensation agreements; any gains or losses will
accrue to the individual employee once the deferred compensation is
released to that individual;
- depreciation and amortization expense
related to commercial real estate investments that is recognized by
JMP Group as a result of equity method accounting;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments as well as
certain warrant positions; and
- non-controlling interests in revenues
generated by consolidated entities, including HCAP Advisors and
CLOs managed by JMP Credit Advisors.
A reconciliation of JMP Group’s net revenues to its adjusted net
revenues for the quarter ended June 30, 2017, and for comparable
prior periods is set forth below.
Quarter Ended Six Months Ended (in
thousands) June 30, 2017 Mar. 31, 2017
June 30, 2016 June 30, 2017 June 30, 2016
Revenues: Non-interest revenues $28,586 $24,462 $26,162 $53,048
$60,922 Net interest income 1,953 972 4,014 2,925 8,440 Early
retirement of debt (5,542) 210 - (5,332) - Provision for loan
losses (1,854) (1,266) (453) (3,120) (1,084) Total net revenues
23,143 24,378 29,723 47,521 68,278 Add back/(subtract):
General loan loss provision/(reversal) –
collateralized loan obligations
1,251 (418) (440) 833 (33) Early retirement of debt 5,432 - - 5,432
-
Unrealized mark-to-market loss/(gain) –
deferred compensation
234 (75) (50) 159 (127)
Unrealized loss – real estate-related
depreciation and amortization
1,745 2,156 2,070 3,901 2,400
Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants
69 419 (435) 488 (764) Non-controlling interests (875) (1,199)
(2,465) (2,074) (4,735) Adjusted net revenues $30,999 $25,261
$28,403 $56,260 $65,019
Company management has utilized adjusted net revenue, adjusted
in the manner described above, as an additional device to aid in
understanding and analyzing JMP Group’s financial results for the
periods presented. Management believes that adjusting net revenue
in these ways is useful in that it allows for a better evaluation
of the performance of JMP Group’s ongoing business and facilitates
a meaningful comparison of the company’s results in a given period
to those in prior and future periods.
Asset Management-Related Fee Revenues
Asset management-related fee revenue is a non-GAAP financial
measure that (i) excludes the non-controlling interest in asset
management subsidiary HCAP Advisors and in certain collateralized
loan obligations and (ii) includes certain fee revenues (in
particular, asset management fundraising fees generated by JMP
Securities, loan fees, and revenues from fee-sharing arrangements
with other asset managers) that are reported in JMP Group’s
financial statements as other income.
A statement of JMP Group’s asset management-related fee revenues
for the quarter ended June 30, 2017, and for comparable prior
periods is set forth below.
Quarter Ended Six Months Ended (in
thousands) June 30, 2017 Mar. 31, 2017
June 30, 2016 June 30, 2017 June 30, 2016 Base
management fees: Fees reported as asset management fees $4,098
$4,045 $4,139 $8,143 $8,274 Non-controlling interests (174) (335)
(362) (508) (726) Total base management fees 3,924 3,710 3,777
7,635 7,548 Incentive fees: Fees reported as asset
management fees 55 1,866 1,448 1,920 6,640 Non-controlling
interests (15) (113) (288) (128) (550) Total incentive fees 40
1,753 1,160 1,792 6,090 Other fee income: Total fundraising
and other fees 195 446 47 641 272
Asset management-related fee revenues
$4,159 $5,909 $4,984 $10,068 $13,910
Company management has utilized asset management-related fee
revenue as a means of assessing the performance of JMP Group’s
combined asset management activities, including its fundraising and
other services for third parties. Management believes that asset
management-related fee revenues, as presented above, provide useful
information by indicating the relative contributions of base
management fees and performance-related incentive fees, thus
facilitating a comparison of those fees in a given period to those
in prior and future periods. Management also believes that asset
management-related fee revenue is a more meaningful measure than
standalone asset management fees as reported, because asset
management-related fee revenues represent the combined impact of
JMP Group’s various asset management activities on the company’s
total net revenues.
Adjusted Principal Transaction Revenues
Adjusted principal transaction revenue is a non-GAAP financial
measure that reverses (i) net unrealized gains and losses related
to deferred compensation, (ii) unrealized losses derived from
depreciation and amortization of real estate investment properties,
and (iii) net unrealized gains and losses on strategic equity
investments and warrants, in keeping with the calculation of
adjusted net revenue, as detailed above.
A summary of the company’s principal transaction revenues for
the quarter ended June 30, 2017, and for comparable prior periods
is set forth below.
Quarter Ended Six Months Ended (in
thousands) June 30, 2017 Mar. 31, 2017
June 30, 2016 June 30, 2017 June 30, 2016
Hedge fund investments $352 $130 ($266) $482 ($866)
Investment in Harvest Capital Credit
Corporation
(69) (419) 435 (488) 748 Other principal investments (606) (1,603)
6,463 (2,209) 7,680 Total principal transaction revenues (323)
(1,892) 6,632 (2,215) 7,562 Add back/(subtract):
Unrealized mark-to-market loss/(gain) –
deferred compensation
234 (75) (51) 159 (128)
Unrealized loss – real estate-related
depreciation and amortization
1,745 2,156 2,070 3,901 2,400
Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants
69 419 (435) 488 (764) Total operating adjustments 2,048 2,500
1,584 4,548 1,508
Total adjusted principal transaction
revenues
$1,725 $608 $8,216 $2,333 $9,070
Company management utilizes adjusted principal transaction
revenue because it is a component of adjusted net revenue. The
exclusion of certain elements of principal transaction revenues, as
presented above, results in an adjusted measure that is included as
“Principal transactions” among JMP Group’s revenues in the non-GAAP
presentation of segment results of operations that appears below.
Management believes that adjusting principal transaction revenues
and total revenues in these ways is useful in that it allows for a
clearer understanding and comparison of JMP Group’s financial
results for the periods presented.
Compensation Ratio
A compensation ratio expresses compensation expense as a
percentage of net revenues in a given period. As utilized by JMP
Group, an adjusted compensation ratio is a non-GAAP financial
measure that employs adjusted net revenues as the denominator in
its calculation. Furthermore, this ratio adjusts the financial
impact of certain compensation-related and transaction-related
expenses that are or are not recognized under GAAP. In particular,
the adjusted compensation ratio reverses compensation expense and
unrealized mark-to-market gains or losses related to share-based
awards, deferred compensation and non-controlling interests (so
that the compensation expenses used in the numerator correspond to
the adjusted net revenues generated in the periods presented). In
addition, the company presents a further adjusted compensation
ratio that excludes any compensation related to incentive fees
generated by hedge funds, a majority of which is passed through to
the funds’ investment teams if earned, as well as any specific loan
loss provisions.
A statement of JMP Group’s compensation ratio for the quarter
ended June 30, 2017, and for comparable prior periods is set forth
below.
Quarter Ended Six Months Ended ($ in
thousands) June 30, 2017 Mar. 31, 2017
June 30, 2016 June 30, 2017 June 30, 2016
Compensation Ratio Adjusted net revenues $30,999 $25,261 $28,403
$56,260 $65,019 Compensation and benefits $22,652 $21,798
$20,681 $44,450 $48,106 Subtract/(add back):
Compensation expense – stock options and
SARs
(267) 67 281 (200) 496
Compensation expense – RSUs
296 239 (48) 535 204
Compensation expense – deferred
compensation
178 654 435 832 (80)
Unrealized mark-to-market (loss)/gain –
deferred compensation
(234) 75 50 (159) 127
Compensation expense – non-controlling
interest
239 260 271 499 550 Adjusted compensation and benefits $22,440
$20,503 $19,692 $42,943 $46,809
Adjusted ratio of compensation expense to
revenues
72.4% 81.2% 69.3% 76.3% 72.0% Compensation Ratio Excluding
Incentive Fees and Loss Provision Adjusted net revenues $30,999
$25,261 $28,403 $56,260 $65,019 Subtract/(add back):
Compensation expense – hedge fund
incentive fees
- 1,471 879 1,471 5,107 Specific loan loss provision (409) (1,413)
(824) (1,822) (812)
Adjusted net revenues, excluding hedge
fund incentive fees and specific loss provision
$31,408 $25,203 $28,348 $56,611 $60,724 Adjusted
compensation and benefits $22,440 $20,503 $19,692 $42,943 $46,809
Subtract:
Compensation expense – hedge fund
incentive fees
- 1,471 879 1,471 5,107
Adjusted compensation and benefits,
excluding hedge fund incentive fees
$22,440 $19,032 $18,813 $41,472 $41,702
Adjusted ratio of compensation expense to
revenues, excluding hedge fund incentive fees and specific loss
provision
71.4% 75.5% 66.4% 73.3% 68.7%
Company management has utilized compensation ratios, adjusted in
the manners described above, to assess JMP Group’s personnel
expenses as they relate to its revenues for the periods presented.
Management believes that adjusted compensation ratios provide
useful information by including or excluding certain expenses as a
means of representing the company’s ongoing personnel costs
resulting from its core business activities. Management also
believes that compensation ratios are useful measures because they
allow and facilitate meaningful comparisons of the company’s
personnel expenses in a given period to those in prior and future
periods.
Operating Net Income
Operating net income is a non-GAAP financial measure that (i)
reverses compensation expense related to share-based awards and
deferred compensation, (ii) reverses the general loan loss
provision taken with regard to certain CLOs, (iii) excludes the
impact of the early retirement of debt associated with JMP Credit
Advisors CLO II, (iv) excludes transaction costs related to JMP
Credit Advisors CLO II, JMP Credit Advisors CLO III and a
total return swap, (v) excludes amortization expense related to JMP
Credit Advisors CLO III, (vi) reverses unrealized losses derived
from depreciation and amortization of real estate investment
properties, (vii) reverses net unrealized gains and losses on
strategic equity investments and warrants, and (viii) assumes an
effective tax rate. In particular, operating net income adjusts
for:
- the grant of RSUs and options;
- net deferred compensation, which
consists of (a) deferred compensation awarded in a given period but
recognized as a GAAP expense over the subsequent three years, less
(b) GAAP expense recognized in a given period but already reflected
in the operating income of a prior period; the purpose of this
adjustment is to fully reflect compensation awarded in a given
year, notwithstanding the timing of GAAP expense;
- the non-specific loss provision
recorded with regard to loans held by JMP Credit Advisors
CLO II (while outstanding), JMP Credit Advisors CLO III and
JMP Credit Advisors CLO IV and to loans held for investment, which
is required by GAAP;
- the one-time expense associated with
the contribution of the loans underlying JMP Credit Advisors
CLO II to newly formed JMP Credit Advisors CLO IV and the
resulting acceleration of the amortization of remaining capitalized
issuance costs;
- the one-time transaction costs related
to the redemption of notes issued by JMP Credit Advisors CLO II,
the refinancing of notes issued by JMP Credit Advisors CLO III, and
the termination of a total return swap;
- amortization expense related to an
intangible asset resulting from the repurchase of a portion of the
equity of JMP Credit Advisors CLO III;
- depreciation and amortization expense
related to commercial real estate investments that is recognized by
JMP Group as a result of equity method accounting;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments as well as
certain warrant positions; and
- a combined federal, state and local
income tax rate of 38% at the taxable direct subsidiary of parent
company JMP Group, while applying a tax rate of 0% to the company’s
other direct subsidiary, which is a “pass-through entity” for tax
purposes.
A reconciliation of JMP Group’s net income to its operating net
income for the quarter ended June 30, 2017, and for comparable
prior periods is set forth below.
Quarter Ended Six Months Ended June 30,
2017 Mar. 31, 2017 June 30, 2016 June
30, 2017 June 30, 2016 Net (loss)/income
attributable to JMP Group ($8,535) ($4,740) ($327) ($13,275) $1,476
Add back/(subtract): Income tax (benefit) (198) (1,084)
(246) (1,282) (196) (Loss)/income before taxes (8,733) (5,824)
(573) (14,557) 1,280 Add back/(subtract):
Compensation expense – stock options and
SARs
(267) 67 281 (200) 496
Compensation expense – RSUs
296 239 (48) 535 204
Compensation expense – net deferred
compensation
178 654 435 832 (80)
General loan loss provision/(reversal) –
collateralized loan obligations
1,251 (418) (440) 833 (33) Early retirement of debt 5,432 - - 5,432
- Transaction costs – commercial loan portfolios 286 - - 286 -
Amortization of intangible asset – CLO III 69 69 - 138 -
Unrealized loss – real estate-related
depreciation and amortization
1,745 2,156 2,070 3,901 2,400
Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants
69 419 (435) 488 (764) Operating income/(loss) before taxes 326
(2,638) 1,290 (2,312) 3,503 Income tax benefit 233 555 1,278 788
1,223 Operating net income/(loss) $559 ($2,083) $2,568 ($1,524)
$4,726 Operating net income/(loss) per share: Basic $0.03
($0.10) $0.12 ($0.07) $0.22 Diluted (1) $0.03 ($0.09) $0.12 ($0.07)
$0.22 Weighted average shares outstanding: Basic 21,651
21,573 21,058 21,612 21,204 Diluted (1) 22,107 21,988 21,703 22,006
21,634
(1)
In 2013 and the first quarter of 2014, JMP Group
issued restricted share units, or RSUs, bearing non-forfeitable
distribution equivalent rights. GAAP requires RSUs with
non-forfeitable distribution equivalent rights to be included in
the diluted share count (without applying the treasury method).
Management presents a non-GAAP diluted share count, in keeping with
the presentation for quarters not impacted by this GAAP requirement
for such RSUs. The non-GAAP diluted share count reflects the impact
of such RSUs under the treasury method, which is consistent with
the calculation of the dilutive impact of all other RSUs
outstanding. On a GAAP basis, the weighted average number of
diluted shares outstanding for the quarter and six months ended
June 30, 2017, was 21,651,544 and 21,612,333, respectively,
equivalent to the weighted average number of basic shares
outstanding, due to the company’s net loss for those periods.
Likewise, the weighted average number of diluted shares outstanding
for the quarter ended March 31, 2017, was 21,572,686 and for the
quarter ended June 30, 2016, was 21,058,018 on a GAAP basis. Under
GAAP, in a period of net loss, dilutive securities are disregarded
in the calculation of earnings per share. On a GAAP basis, the
weighted average number of diluted shares outstanding for the six
months ended June 30, 2016, a period in which there was net income,
was 21,765,412.
Company management has utilized operating net income on a total
and per share basis, adjusted in the manner described above, as an
additional device to aid in understanding and analyzing JMP Group’s
financial results for the periods presented. Management believes
that operating net income provides useful information by excluding
certain items that may not be representative of the company’s core
operating results or core business activities. Management also
believes that operating net income is a useful measure because it
allows for a better evaluation of the performance of JMP Group’s
ongoing business and facilitates a meaningful comparison of the
company’s results in a given period to those in prior and future
periods.
Segment Reporting
In order to demonstrate the contribution to the company’s
results of each of its primary businesses on a standalone basis,
JMP Group presents the operating net income generated by each
segment in the tables that follow. Management believes that this
presentation enables investors to better understand the separate
but interrelated financial operations of the company’s various
business lines and to more accurately assess the contribution of
each to JMP Group’s aggregate results.
Total net revenues have been adjusted, in part, as detailed
above in the section titled “Adjusted Net Revenue,” and the
resulting presentation of adjusted net revenues excludes (i) the
general loan loss provision taken with regard to certain CLOs, (ii)
the impact of the early retirement of debt associated with JMP
Credit Advisors CLO II, (iii) unrealized mark-to-market gains or
losses on investments related to deferred compensation, (iv)
unrealized losses derived from depreciation and amortization of
real estate investment properties, (v) net unrealized gains and
losses on strategic equity investments and warrants, and (vi)
non-controlling interests in various sources of revenue that are
consolidated according to GAAP. Total non-interest expenses have
been adjusted, in part, as detailed above in the section titled
“Operating Net Income,” and the resulting adjusted non-interest
expense reverses compensation expense related to share-based awards
and deferred compensation. Expenses derived from non-controlling
interests in entities that are consolidated according to GAAP have
also been reversed. For the purposes of calculating operating net
income, an effective tax rate of 38% is assumed for JMP Group’s
taxable subsidiary, based on the company’s best estimation of the
subsidiary’s average rate of taxation over the long term.
A statement of JMP Group’s operating net income on a segment
basis for the quarter ended June 30, 2017, is set forth below.
Quarter Ended June 30, 2017
Net Broker- Asset
Operating Corporate Elimin- JMP (in thousands, except per share
amounts) Dealer Mgmt. Platforms Income ations Group
Revenues: Investment banking $19,128 - $19,128 - - $19,128
Brokerage 5,078 - 5,078 - - 5,078 Asset management-related fees -
$4,856 4,856 $25 ($722) 4,159 Principal transactions - - - 1,725 -
1,725 Gain on sale and payoff of loans - - - 104 - 104 Net dividend
income - - - 274 - 274 Net interest income - - - 940 - 940
Provision for loan losses - - - (409) - (409) Adjusted net revenues
24,206 4,856 29,062 2,659 (722) 30,999 Expenses:
Non-interest expense/(income) 22,458 5,303 27,761 3,634 (722)
30,673 Operating income/(loss) before taxes 1,748 (447) 1,301 (975)
- 326 Income tax expense/(benefit) 665 (169) 496 (729) -
(233) Operating net income/(loss) $1,083 ($278) $805 ($246) - $559
Operating net income/(loss) per share: Basic $0.05 ($0.01)
$0.04 ($0.01) - $0.03 Diluted $0.05 ($0.01) $0.04 ($0.01) - $0.03
A statement of JMP Group’s operating net income on a segment
basis for the six months ended June 30, 2017, is set forth
below.
Six Months Ended June 30, 2017
Net Broker- Asset
Operating Corporate Elimin- JMP (in thousands, except per share
amounts) Dealer Mgmt. Platforms Income ations Group
Revenues: Investment banking $32,728 - $32,728 - - $32,728
Brokerage 10,364 - 10,364 - - 10,364 Asset management-related fees
4 $10,167 10,171 $1,660 ($1,763) 10,068 Principal transactions - -
- 2,333 - 2,333 Gain on sale and payoff of loans - - - 883 - 883
Gain on repurchase of asset-backed
securities issued
- - - 210 - 210 Net dividend income - - - 541 - 541 Net interest
income - - - 955 - 955 Provision for loan losses - - - (1,822) -
(1,822) Adjusted net revenues 43,096 10,167 53,263 4,760 (1,763)
56,260 Expenses: Non-interest expense/(income) 41,019 10,398
51,417 8,918 (1,763) 58,572 Operating income/(loss) before taxes
2,077 (231) 1,846 (4,158) - (2,312) Income tax
expense/(benefit) 790 (88) 702 (1,490) - (788) Operating net
income/(loss) $1,287 ($143) $1,144 ($2,668) - ($1,524)
Operating net income/(loss) per share: Basic $0.06 ($0.01) $0.05
($0.12) - ($0.07) Diluted $0.06 ($0.01) $0.05 ($0.12) - ($0.07)
Book Value per Share
At June 30, 2017, JMP Group’s book value per share was $4.82.
Adding back accumulated depreciation and amortization expense
related to commercial real estate investments that is recognized by
JMP Group as a result of equity method accounting reflects the
reversal of that expense in the calculation of adjusted net
revenues, adjusted principal transaction revenues and operating net
income. Likewise, adding back the accumulated general loan loss
provision related to collateralized loan obligations reflects the
reversal of that provision in the calculation of adjusted net
revenues and operating net income. Such reversals result in an
adjusted book value per share of $5.43, as set forth below.
(in thousands, except per share amounts) June 30,
2017 Mar. 31, 2017 June 30, 2016
Shareholders' equity $104,162 $114,174 $120,379
Accumulated unrealized loss – real
estate-related depreciation and amortization
$8,206 $6,461 $2,463
Accumulated general loan loss provision –
collateralized loan obligations
4,914 3,662 2,961 Adjusted shareholders' equity $117,281 $124,297
$125,803 Book value per share $4.82 $5.27 $5.75 Adjusted
book value per share $5.43 $5.74 $6.01 Basic shares
outstanding 21,599 21,659 20,945 Quarterly operating ROE (1)
2.0% (7.1%) 8.5% LTM operating ROE (1) 3.6% 5.2% 5.5%
Quarterly adjusted operating ROE (1) 1.9% (6.6%) 8.1% LTM adjusted
operating ROE (1) 3.4% 4.9% 5.4% (1) Operating return
on equity (ROE) equals operating net income divided by average
shareholders’ equity. Adjusted operating ROE equals operating net
income divided by average adjusted shareholders’ equity. For more
information about operating net income, including a reconciliation
to net income attributable to JMP Group, see the section above
titled “Operating Net Income.”
Company management utilizes adjusted book value on a total and
per share basis, adjusted in the manner described above, as an
additional means of evaluating JMP Group’s efforts to retain
earnings and build shareholders’ equity. Management believes that
adjusted book value per share provides useful information by
excluding non-cash expenses related to real estate investments that
otherwise obscure the company’s increases and decreases in net
worth as a result of its core business activities. Management also
believes that adjusted book value allows for a better comparison of
shareholder’s equity and the return on that equity in a given
period to those in prior and future periods.
Cautionary Note Regarding Quarterly Financial Results
Due to the nature of its business, JMP Group’s quarterly
revenues and net income may fluctuate materially depending on: the
size and number of investment banking transactions on which it
advises; the timing of the completion of those transactions; the
size and number of securities trades which it executes for
brokerage customers; the performance of its asset management funds
and inflows and outflows of assets under management; gains or
losses stemming from sales of or prepayments on, or losses stemming
from defaults on, loans underlying the company’s collateralized
loan obligations; and the effect of the overall condition of the
securities markets and economy as a whole. Accordingly, revenues
and net income in any particular quarter may not be indicative of
future results. Furthermore, JMP Group’s compensation expense is
generally based upon revenues and can fluctuate materially in any
quarter, depending upon the amount and sorts of revenue recognized
as well as other factors. The amount of compensation and benefits
expense recognized in a particular quarter may not be indicative of
such expense in any future period. As a result, the company
suggests that its annual results may be the most meaningful gauge
for investors in evaluating the performance of its business.
Cautionary Note Regarding Forward-Looking Statements
This press release may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements provide JMP Group’s current
expectations or forecasts about future events, including beliefs,
plans, objectives, intentions, assumptions and other statements
that are not historical facts. Forward-looking statements are
subject to known and unknown risks and uncertainties that could
cause actual results to differ materially from those expected or
implied by the forward-looking statements. The company’s actual
results could differ materially from those anticipated in
forward-looking statements for many reasons, including the factors
described in the sections entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in the company’s Form 10-K for the year ended December
31, 2016, as filed with the U.S. Securities and Exchange Commission
on March 14, 2017, as well as in the similarly captioned sections
of other periodic reports filed by the company under the Exchange
Act. The Form 10-K for the year ended December 31, 2016, and all
other periodic reports are available on JMP Group’s website at
www.jmpg.com and on the SEC’s website at www.sec.gov. Unless
required by law, JMP Group undertakes no obligation to publicly
update or revise any forward-looking statement to reflect
circumstances or events after the date of this press release.
Disclosure Information
JMP Group uses the investor relations section of its website as
a means of complying with its disclosure obligations under
Regulation FD. Accordingly, investors should monitor the company’s
website in addition to its press releases, SEC filings, and
investor conference calls and webcasts.
Conference Call
JMP Group will hold a conference call to discuss the results
detailed herein at 10:00 a.m. EDT on Wednesday, August 2, 2017. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
69400247.
The conference call will also be broadcast live over the
Internet and will be accessible via a link in the investor
relations section of the company’s website, at
investor.jmpg.com/events.cfm. The Internet broadcast will be
archived and will remain available on the website for future
replay.
About JMP Group
JMP Group LLC is a diversified capital markets
firm that provides investment banking, equity research, and sales
and trading services to corporate and institutional clients as well
as alternative asset management products and services to
institutional and high-net-worth investors. JMP Group conducts its
investment banking and research, sales and trading activities
through JMP Securities; its hedge fund, venture and private
capital, and credit management activities through Harvest Capital
Strategies, JMP Asset Management and JMP Credit Advisors; and the
management of Harvest Capital Credit Corporation (NASDAQ: HCAP), a
business development company, through HCAP Advisors. For more
information, visit www.jmpg.com.
JMP GROUP LLC Consolidated Statements of Financial
Condition (Unaudited) (in thousands) June
30, 2017 Dec. 31, 2016 Assets Cash and
cash equivalents $88,785 $85,492 Restricted cash and deposits
51,629 227,656 Marketable securities owned, at fair value 21,233
18,722 Other investments 29,190 32,869 Loans held for sale, at fair
value - 32,488 Loans held for investment, net of allowance for loan
losses 7,059 1,930
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
757,762 654,127 Cash collateral posted for total return swap 1,540
25,000 Deferred tax assets 7,608 7,942 Other assets 35,172 39,604
Total assets $999,978 $1,125,830 Liabilities and
Shareholders' Equity Liabilities: Marketable securities
sold, but not yet purchased, at fair value $5,770 $4,747 Accrued
compensation 18,739 36,158 Asset-backed securities issued, net of
issuance costs 737,211 825,854 Bond payable, net of issuance costs
91,996 91,785 Deferred tax liability 2,330 3,872 Other liabilities
25,900 28,120 Total liabilities 881,946 990,536
Shareholders' Equity: Total JMP Group LLC shareholders' equity
104,162 119,377 Non-redeemable non-controlling interest 13,870
15,917 Total equity 118,032 135,294 Total liabilities and
shareholders' equity $999,978 $1,125,830
JMP GROUP LLC
Consolidated Statements of Operations (Unaudited)
Quarter Ended Six Months Ended (in
thousands, except per share amounts) June 30, 2017
June 30, 2016 June 30, 2017 June 30, 2016
Revenues: Investment banking $19,128 $8,375 $32,728 $26,671
Brokerage 5,078 5,811 10,364 11,906 Asset management fees 4,153
5,588 10,064 14,914 Principal transactions (323) 6,632 (2,216)
7,562 Gain/(loss) on sale and payoff of loans 83 (533) 930 (909)
Net dividend income 273 243 539 506 Other income 194 46 639 272
Non-interest revenues 28,586 26,162 53,048 60,922 Interest
income 9,696 12,124 18,763 24,525 Interest expense (7,743) (8,110)
(15,838) (16,085) Net interest income 1,953 4,014 2,925 8,440
Loss on repurchase or early retirement of debt (5,542) -
(5,332) - Provision for loan losses (1,854) (453) (3,120) (1,084)
Total net revenues 23,143 29,723 47,521 68,278 Non-interest
expenses: Compensation and benefits 22,652 20,681 44,450 48,106
Administration 2,721 2,014 4,540 3,832 Brokerage, clearing and
exchange fees 789 813 1,548 1,574 Travel and business development
1,111 1,238 2,026 2,529 Communications and technology 1,051 1,044
2,104 2,060 Occupancy 1,111 930 2,222 1,866 Professional fees 853
1,053 2,015 2,126 Depreciation 303 324 614 656 Other 950 540 1,627
1,161 Total non-interest expense 31,541 28,637 61,146 63,910
Net (loss)/income before income tax expense (8,398) 1,086 (13,625)
4,368 Income tax (benefit) (198) (246) (1,282) (196) Net
(loss)/income (8,200) 1,332 (12,343) 4,564
Less: Net income attributable to
non-redeemable non-controlling interest
335 1,659 932 3,088 Net (loss)/income attributable to JMP Group
($8,535) ($327) ($13,275) $1,476 Net (loss)/income
attributable to JMP Group per share: Basic ($0.39) ($0.02) ($0.61)
$0.07 Diluted ($0.39) ($0.02) ($0.61) $0.07 Weighted average
common shares outstanding: Basic 21,652 21,058 21,612 21,204
Diluted 21,652 21,058 21,612 21,766
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170801006698/en/
Investor Relations ContactJMP Group LLCAndrew Palmer,
415-835-8978apalmer@jmpg.comorMedia Relations ContactsDukas
Linden Public Relations, Inc.Seth Linden,
212-704-7385seth@dlpr.comBen Jaffe, 212-704-7385ben@dlpr.com
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