JMP Group LLC (NYSE: JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter ended September 30, 2017.
- The net loss attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $1.2
million, or $0.06 per diluted share, compared to net income of $0.7
million, or $0.03 per share, for the quarter ended September 30,
2016. For the nine months ended September 30, 2017, the GAAP net
loss was $14.5 million, or $0.67 per share, compared to net income
of $2.1 million, or $0.10 per share, for the nine months ended
September 30, 2016.
- Total net revenues on a GAAP basis were
$32.0 million and $79.6 million for the quarter and nine months
ended September 30, 2017, respectively, compared to $30.7 million
and $99.0 million for the quarter and nine months ended September
30, 2016, respectively.
- Operating net income was $2.3 million,
or $0.10 per diluted share, compared to $2.9 million, or $0.13 per
share, for the quarter ended September 30, 2016. For the nine
months ended September 30, 2017, operating net income was $0.8
million, or $0.03 per share, compared to $7.6 million, or
$0.35 per share, for the nine months ended September 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 $32.9
million and $89.2 million for the quarter and nine months ended
September 30, 2017, respectively, compared to $29.6 million and
$94.7 million for the quarter and nine months ended September 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 results were better than expected, driven by record
third-quarter investment banking revenues at JMP Securities and
continued progress in redeploying our excess cash,” said Chairman
and Chief Executive Officer Joe Jolson. “JMP Securities’ share of
the U.S. equity capital markets business has increased, as
evidenced by a year-over-year jump in equity underwriting revenues
of 41% for the third quarter and 77% for the first nine months of
the year. In contrast, the broader industry has recovered more
slowly from a two-year slump, with U.S. ECM fees down 11%
year-over-year for the third quarter, though up 26% for the first
nine months of 2017, according to Dealogic.
“At period-end, we had $1.49 per share in investable cash,
compared to $2.18 per share in June. In July, we announced a $200
million warehouse facility that enables us to accumulate loans for
our fifth CLO over the next six to 12 months. If we successfully
execute CLO V, we may once again be able to cover our fixed
corporate costs on a consolidated basis and also fund our current
cash distributions completely with net investment income from our
publicly traded partnership.
“We are off to a good start in the fourth quarter, as our
investment banking momentum has continued with the closing of a
large M&A transaction for Forestar. Thanks to a more normalized
capital markets environment, we are also executing an increasing
number of IPOs and follow-on offerings. In addition, Workspace
Property Trust recently filed a registration statement in
connection with an IPO and, as a founding investor, we are hopeful
for a successful transaction.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $26.8 million, an increase of 33.8% from $20.1
million for the third quarter of 2016. JMP Securities’ operating
margin on adjusted net revenues was 17.3%, compared to 3.7% for the
third quarter of 2016. The asset management segment reported
adjusted net revenues of $4.8 million, a decrease of 9.4% from $5.3
million for the third quarter of 2016. Together, these two segments
represent JMP Group’s operating platforms.
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. However, after calling JMP Credit
Advisors CLO I in December 2016 and redeeming capital from hedge
funds managed by Harvest Capital Strategies over the past year, JMP
Group has operated with an unusually large investable cash balance
throughout 2017. As a result, for the third quarter, the company
reported net corporate expense of $0.5 million, compared to net
corporate income of $2.4 million for the third quarter of 2016.
A summary of JMP Group’s operating net income per share by
segment for the quarter ended September 30, 2017, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended ($ as shown) Sept.
30, 2017 June 30, 2017 Sept. 30, 2016 Sept. 30, 2017
Sept. 30, 2016 Broker-dealer $ 0.13 $ 0.05 $ 0.02 $ 0.19 $
0.03 Asset management (0.00 ) (0.01 ) 0.00
(0.01 ) 0.04 Operating platform EPS 0.13 0.04 0.02
0.18 0.06 Net corporate income (0.02 ) (0.01 )
0.11 (0.14 ) 0.29 Operating EPS (diluted) $ 0.10
$ 0.03 $ 0.13 $ 0.03 $ 0.35
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 $22.1 million and $54.8 million
for the quarter and nine months ended September 30, 2017,
respectively, compared to $15.0 million and $41.7 million for the
quarter and nine months ended September 30, 2016, respectively.
A summary of the company’s investment banking revenues and
transaction counts for the quarter ended September 30, 2017, and
for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended Sept. 30, 2017
June 30, 2017 Sept. 30, 2016 Sept. 30, 2017 Sept. 30,
2016 ($ in thousands) Count Revenues Count Revenues
Count Revenues Count Revenues Count Revenues
Equity and debt origination
22 $ 15,639 37 $ 14,384 15 $ 8,098 82 $ 40,493 39 $ 17,636
Strategic advisory and private
placements
6 6,446 5 4,744 8 6,950 14 14,320 19
24,083 Total 28 $ 22,085 42 $ 19,128 23 $ 15,048 96 $ 54,813
58 $ 41,719
Brokerage
Net brokerage revenues were $4.8 million and $15.1 million for
the quarter and nine months ended September 30, 2017, respectively,
compared to $5.0 million and $16.9 million for the quarter and nine
months ended September 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 $20.4 million and $55.6 million
for the quarter and nine months ended September 30, 2017,
respectively, compared to $13.1 million and $34.6 million for the
quarter and nine months ended September 30, 2016, respectively.
Asset Management
Asset management fees were $4.0 million, in line with $4.0
million for the third quarter of 2016. For the nine months ended
September 30, 2017, asset management fees were $14.1 million,
including $2.0 million of incentive fees, compared to $19.0
million, including $6.5 million of incentive fees, for the nine
months ended September 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 $4.1
million and $14.2 million for the quarter and nine months ended
September 30, 2017, respectively, compared to $3.9 million and
$17.8 million for the quarter and nine months ended September 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 September 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
June 30, 2017, and $2.3 billion at September 30, 2016.
Including sponsored funds in which JMP Group owns an economic
interest, client assets under management totaled $3.2 billion at
September 30, 2017.
At September 30, 2017, private capital, including corporate
credit, small business lending, venture capital and real
estate-related investments, represented 81.4% of client assets
under management, including sponsored funds.
Principal Transactions
Principal transactions generated a net realized and unrealized
loss of $1.4 million, compared to a net realized and unrealized
gain of $2.8 million for the third quarter of 2016. For the nine
months ended September 30, 2017, principal transactions generated a
net realized and unrealized loss of $3.6 million, compared to a net
realized and unrealized gain of $10.3 million for the nine months
ended September 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 $0.9 million and $3.2 million for the quarter and
nine months ended September 30, 2017, respectively, compared to
$3.3 million and $12.4 million for the quarter and nine months
ended September 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.”
Net Interest Income
Net interest income was $2.1 million and $5.0 million for the
quarter and nine months ended September 30, 2017,
respectively, compared to $3.3 million and $11.7 million for the
quarter and nine months ended September 30, 2016, respectively. The
year-over-year declines were primarily due to materially lower
average loan balances in 2017 resulting from the liquidation of JMP
Credit Advisors CLO I in February 2017.
Provision for Loan Losses
The net loan loss provision for the quarter was $0.4 million in
connection with impaired loans underlying certain collateralized
loan obligations managed by JMP Credit Advisors and with loans held
for investment.
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.
Expenses
Compensation and Benefits
Compensation and benefits expense was $24.6 million, compared to
$22.2 million for the third 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 71.3% of adjusted net
revenues, compared to 68.4% for the third quarter of 2016. Further
excluding specific loan loss provisions and compensation expense
related to hedge fund incentive fees, the compensation ratio was
70.0%, compared to 68.4% for the third quarter of 2016.
For the nine months ended September 30, 2017, compensation and
benefits expense was $69.0 million, compared to $70.3 million for
the nine months ended September 30, 2016. With regard to annually
awarded compensation, compensation and benefits expense was 74.5%
of adjusted net revenues, compared to 70.9% for the nine months
ended September 30, 2016. Further excluding specific loan loss
provisions and compensation expense related to hedge fund incentive
fees, the compensation ratio was 72.0%, compared to 68.6% for the
nine months ended September 30, 2016.
For more information about compensation ratios, see the section
below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $6.8 million and $23.5 million for
the quarter and nine months ended September 30, 2017, respectively,
compared to $7.5 million and $23.3 million for the quarter and nine
months ended September 30, 2016, respectively.
Share Repurchase Activity
JMP Group repurchased approximately 235,000 shares of its common
stock during the quarter ended September 30, 2017. At quarter-end,
nearly 700,000 shares remained eligible for repurchase under the
company’s existing authorization.
Personnel
At September 30, 2017, the company had 230 full-time employees,
compared to 226 at June 30, 2017, and 228 at September 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 JMP Credit Advisors CLO IV and the resulting acceleration of the
amortization of remaining capitalized issuance costs in the second
quarter of 2017;
- 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 September 30, 2017, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2017 June 30, 2017 Sept. 30, 2016 Sept. 30, 2017
Sept. 30, 2016 Revenues: Non-interest revenues $
30,308 $ 28,586 $ 27,311 $ 83,356 $ 88,233 Net interest income
2,089 1,953 3,260 5,014 11,700 Early retirement of debt - (5,542 )
- (5,332 ) - Provision for loan losses (368 ) (1,854
) 104 (3,488 ) (980 ) Total net
revenues 32,029 23,143 30,675 79,550 98,953 Add
back/(subtract):
General loan loss (reversal)/provision –
collateralized loan obligations
(136 ) 1,251 (76 ) 697 (109 ) Early retirement of debt - 5,432 -
5,432 -
Unrealized mark-to-market (gain)/loss –
deferred compensation
(122 ) 234 21 37 (106 )
Unrealized loss – real estate-related
depreciation and amortization
2,571 1,745 123 6,472 2,523
Unrealized mark-to-market (gain)/loss –
strategic equity investments and warrants
(191 ) 69 435 297 (329 ) Non-controlling interests (1,202 )
(875 ) (1,529 ) (3,276 ) (6,264 )
Adjusted net revenues $ 32,949 $ 30,999 $
29,649 $ 89,209 $ 94,668
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 September 30, 2017, and for comparable prior
periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2017 June 30, 2017 Sept. 30, 2016 Sept. 30, 2017
Sept. 30, 2016 Base management fees: Fees reported as
asset management fees $ 3,941 $ 4,098 $ 4,160 $ 12,084 $ 12,434
Non-controlling interests (152 ) (174 ) (355 )
(660 ) (1,081 ) Total base management fees
3,789 3,924 3,805 11,424
11,353 Incentive fees: Fees reported as
asset management fees 73 55 (116 ) 1,994 6,523 Non-controlling
interests - (15 ) (73 ) (128 )
(623 ) Total incentive fees 73 40
(189 ) 1,866 5,900
Other fee income: Total fundraising and other fees 282
195 261 922
534
Asset management-related fee revenues
$ 4,144 $ 4,159 $ 3,877 $ 14,212 $
17,787
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 September 30, 2017, and for comparable prior
periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2017 June 30, 2017 Sept. 30, 2016 Sept. 30, 2017
Sept. 30, 2016 Hedge fund investments $ 687 $ 352 $
939 $ 1,170 $ 73
Investment in Harvest Capital Credit
Corporation
191 (69 ) (435 ) (297 )
314 Other principal investments (2,269 ) (606 )
2,260 (4,479 ) 9,938 Total
principal transaction revenues (1,391 ) (323 )
2,764 (3,606 ) 10,325 Add
back/(subtract):
Unrealized mark-to-market (gain)/loss –
deferred compensation
(122 ) 234 20 37 (107 )
Unrealized loss – real estate-related
depreciation and amortization
2,571 1,745 123 6,472 2,523
Unrealized mark-to-market (gain)/loss –
strategic equity investments and warrants
(191 ) 69 435 297
(329 ) Total operating adjustments 2,258
2,048 578 6,806
2,087 Total adjusted principal transaction revenues $
867 $ 1,725 $ 3,342 $ 3,200 $ 12,412
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 September 30, 2017, and for comparable prior periods is set
forth below.
Quarter Ended Nine Months Ended ($ in thousands)
Sept. 30, 2017 June 30, 2017 Sept. 30, 2016 Sept. 30,
2017 Sept. 30, 2016 Compensation Ratio
Adjusted net revenues $ 32,949 $ 30,999 $ 29,649
$ 89,209 $ 94,668 Compensation and
benefits $ 24,563 $ 22,652 $ 22,167 $ 69,013 $ 70,273 Subtract/(add
back):
Compensation expense – stock options and
SARs
54 (267 ) 274 (146 ) 770
Compensation expense – RSUs
206 296 309 741 513
Compensation expense – deferred
compensation
436 178 1,126 1,268 1,046
Unrealized mark-to-market gain/(loss) –
deferred compensation
122 (234 ) (21 ) (37 ) 106
Compensation expense – non-controlling
interest
263 239 207 762
756 Adjusted compensation and benefits $
23,482 $ 22,440 $ 20,272 $ 66,425 $
67,082
Adjusted ratio of compensation expense to
revenues
71.3 % 72.4 % 68.4 % 74.5 % 70.9 % Compensation Ratio
Excluding Incentive Fees and Loss Provision Adjusted net
revenues $ 32,949 $ 30,999 $ 29,649 $ 89,209 $ 94,668 Subtract/(add
back):
Compensation expense – hedge fund
incentive fees
61 - - 1,532 5,107 Specific loan loss provision (593 )
(409 ) 17 (2,415 ) (795 )
Adjusted net revenues, excluding hedge
fund incentive fees and specific loss provision
$ 33,481 $ 31,408 $ 29,632 $ 90,092 $
90,356 Adjusted compensation and benefits $ 23,482 $
22,440 $ 20,272 $ 66,425 $ 67,082 Subtract:
Compensation expense – hedge fund
incentive fees
61 - - 1,532
5,107
Adjusted compensation and benefits,
excluding hedge fund incentive fees
$ 23,421 $ 22,440 $ 20,272 $ 64,893 $
61,975
Adjusted ratio of compensation expense to
revenues, excluding hedge fund incentive fees and specific loss
provision
70.0 % 71.4 % 68.4 % 72.0 % 68.6 %
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 JMP Credit Advisors CLO IV and the resulting
acceleration of the amortization of remaining capitalized issuance
costs in the second quarter of 2017;
- one-time transaction costs related to a
restructuring of CLO portfolios that included 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 September 30, 2017, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended Sept. 30, 2017
June 30, 2017 Sept. 30, 2016 Sept. 30, 2017 Sept. 30,
2016 Net (loss)/income attributable to JMP Group
$
(1,235
)
$
(8,535
) $ 661
$
(14,510
) $ 2,137 Add back/(subtract): Income tax (benefit)
1,113 (198 ) (597 ) (169 ) (793
) (Loss)/income before taxes (122 ) (8,733 ) 64 (14,679 ) 1,344
Add back/(subtract):
Compensation expense – stock options and
SARs
54 (267 ) 274 (146 ) 770
Compensation expense – RSUs
206 296 309 741 513
Compensation expense – net deferred
compensation
436 178 1,126 1,268 1,046
General loan loss (reversal)/provision –
collateralized loan obligations
(136 ) 1,251 (76 ) 697 (109 ) Early retirement of debt - 5,432 -
5,432 - Restructuring costs – CLO portfolios 14 286 - 300 -
Amortization of intangible asset – CLO III 69 69 - 207 -
Unrealized loss – real estate-related
depreciation and amortization
2,571 1,745 123 6,472 2,523
Unrealized mark-to-market (gain)/loss –
strategic equity investments and warrants
(191 ) 69 435 297
(329 ) Operating income before taxes 2,901 326 2,255 589
5,758 Income tax (expense)/benefit (610 ) 233
641 178 1,864
Operating net income $ 2,291 $ 559 $ 2,896 $
767 $ 7,622 Operating net income per share:
Basic $ 0.11 $ 0.03 $ 0.14 $ 0.04 $ 0.36 Diluted (1) $ 0.10 $ 0.03
$ 0.13 $ 0.03 $ 0.35 Weighted average shares outstanding:
Basic 21,525 21,651 20,946 21,583 21,117 Diluted (1) 22,058 22,107
21,844 22,001 21,687 (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 nine months ended
September 30, 2017, was 21,525,122 and 21,582,943, respectively,
equivalent to the weighted average number of basic shares
outstanding, due to the company’s net loss for those periods. 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
quarter and nine months ended September 30, 2016, periods in which
there was net income, was 21,900,893 and 21,796,338, respectively.
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 September 30, 2017, is set forth
below.
Quarter Ended Sept. 30, 2017 (in thousands, except per share
amounts) Broker-Dealer AssetMgmt. OperatingPlatforms
NetCorporateIncome Elimin-ations JMPGroup
Revenues: Investment banking $ 22,085 - $ 22,085 - - $
22,085 Brokerage 4,763 - 4,763 - - 4,763 Asset management-related
fees - $ 4,798 4,798 $ 167
$
(821
) 4,144 Principal transactions - - - 867 - 867 Gain on sale and
payoff of loans - - - 260 - 260 Net dividend income - - - 278 - 278
Net interest income - - - 1,145 - 1,145 Provision for loan losses
- - - (593 ) -
(593 ) Adjusted net revenues 26,848 4,798 31,646 2,124 (821
) 32,949 Expenses: Non-interest expense/(income)
22,215 4,948 27,163 3,706
(821 ) 30,048 Operating income/(loss) before taxes
4,633 (150 ) 4,483 (1,582 ) - 2,901 Income tax
expense/(benefit) 1,761 (57 ) 1,704
(1,094 ) - 610 Operating net
income/(loss) $ 2,872
$
(93
) $ 2,779
$
(488
) - $ 2,291 Operating net income/(loss)
per share: Basic $ 0.13
$
(0.00
) $ 0.13
$
(0.02
) - $ 0.11 Diluted $ 0.13
$
(0.00
) $ 0.13
$
(0.02
) - $ 0.10
A statement of JMP Group’s operating net income on a segment
basis for the nine months ended September 30, 2017, is set forth
below.
Nine Months Ended Sept. 30, 2017 (in thousands, except per
share amounts) Broker-Dealer AssetMgmt.
OperatingPlatforms NetCorporateIncome Elimin-ations
JMPGroup Revenues: Investment banking $ 54,813 - $
54,813 - - $ 54,813 Brokerage 15,127 - 15,127 - - 15,127 Asset
management-related fees 4 $ 14,965 14,969 $ 1,827
$
(2,584
) 14,212 Principal transactions - - - 3,200 - 3,200 Gain on sale
and payoff of loans - - - 1,143 - 1,143
Gain on repurchase of asset-backed
securities issued
- - - 210 - 210 Net dividend income - - - 819 - 819 Net interest
income - - - 2,100 - 2,100 Provision for loan losses -
- - (2,415 ) -
(2,415 ) Adjusted net revenues 69,944 14,965 84,909 6,884 (2,584 )
89,209 Expenses: Non-interest expense/(income) 63,234
15,346 78,580 12,624
(2,584 ) 88,620 Operating income/(loss) before taxes
6,710 (381 ) 6,329 (5,740 ) - 589 Income tax
expense/(benefit) 2,551 (145 ) 2,406
(2,584 ) - (178 ) Operating net income/(loss)
$ 4,159
$
(236
) $ 3,923
$
(3,156
) - $ 767 Operating net income/(loss)
per share: Basic $ 0.19
$
(0.01
) $ 0.18
$
(0.15
) - $ 0.04 Diluted $ 0.19
$
(0.01
) $ 0.18
$
(0.14
) - $ 0.03
Book Value per Share
At September 30, 2017, JMP Group’s book value per share was
$4.69. 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 $5.42, as set forth
below.
(in thousands, except per share amounts) Sept. 30, 2017
June 30, 2017 Sept. 30, 2016 Shareholders'
equity $ 100,710 $ 104,162 $ 121,801
Accumulated unrealized loss – real
estate-related depreciation and amortization
$ 10,777 $ 8,206 $ 2,586
Accumulated general loan loss provision –
collateralized loan obligations
4,778 4,914 3,731
Adjusted shareholders' equity $ 116,265 $ 117,281 $
128,118 Book value per share $ 4.69 $ 4.82
$ 5.82 Adjusted book value per share $ 5.42 $
5.43 $ 6.12 Basic shares outstanding 21,461
21,599 20,939 Quarterly operating ROE (1) 8.9 % 2.0 % 9.6 %
LTM operating ROE (1) 3.2 % 3.6 % 7.0 % Quarterly adjusted
operating ROE (1) 7.8 % 1.9 % 9.1 % LTM adjusted operating ROE (1)
2.9 % 3.4 % 6.7 % (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 Thursday, November 2, 2017. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
7479829.
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) Sept. 30, 2017 Dec. 31, 2016
Assets Cash and cash equivalents $ 83,884 $ 85,492
Restricted cash and deposits 65,573 227,656 Marketable securities
owned, at fair value 22,015 18,722 Other investments 26,573 32,869
Loans held for sale, at fair value - 32,488 Loans held for
investment, net of allowance for loan losses 18,747 1,930
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
756,166 654,127 Cash collateral posted for total return swap -
25,000 Deferred tax assets 12,287 7,942 Other assets 45,786
39,604 Total assets $ 1,031,031 $ 1,125,830
Liabilities and Shareholders' Equity Liabilities: Marketable
securities sold, but not yet purchased, at fair value $ 21,001 $
4,747 Accrued compensation 28,285 36,158 Asset-backed securities
issued, net of issuance costs 737,780 825,854 Bond payable, net of
issuance costs 92,101 91,785 Deferred tax liability 2,393 3,872
Other liabilities 34,908 28,120 Total liabilities
916,468 990,536 Shareholders' Equity: Total
JMP Group LLC shareholders' equity 100,710 119,377 Non-redeemable
non-controlling interest 13,853 15,917 Total equity
114,563 135,294 Total liabilities and shareholders'
equity $ 1,031,031 $ 1,125,830
JMP GROUP LLC
Consolidated Statements of
Operations
(Unaudited)
Quarter Ended Nine Months Ended (in
thousands, except per share amounts) Sept. 30, 2017 Sept. 30, 2016
Sept. 30, 2017 Sept. 30, 2016 Revenues: Investment banking $
22,085 $ 15,048 $ 54,813 $ 41,719 Brokerage 4,763 5,015 15,127
16,921 Asset management fees 4,014 4,044 14,078 18,958 Principal
transactions (1,392 ) 2,764 (3,608 ) 10,326 Gain/(loss) on sale and
payoff of loans 278 (52 ) 1,208 (961 ) Net dividend income 278 230
817 736 Other income 282 262 921
534 Non-interest revenues 30,308
27,311 83,356 88,233
Interest income 10,900 11,472 29,663 35,997 Interest expense
(8,811 ) (8,212 ) (24,649 ) (24,297 )
Net interest income 2,089 3,260
5,014 11,700 Loss on repurchase or
early retirement of debt - - (5,332 ) - Provision for loan losses
(368 ) 104 (3,488 ) (980 ) Total
net revenues 32,029 30,675
79,550 98,953 Non-interest expenses:
Compensation and benefits 24,563 22,167 69,013 70,273
Administration 1,459 1,808 5,999 5,640 Brokerage, clearing and
exchange fees 740 734 2,288 2,308 Travel and business development
709 1,019 2,735 3,548 Communications and technology 1,046 1,033
3,150 3,093 Occupancy 1,117 987 3,339 2,853 Professional fees 1,094
1,119 3,109 3,245 Depreciation 277 312 891 968 Other 366
491 1,993 1,652
Total non-interest expense 31,371 29,670
92,517 93,580 Net
income/(loss) before income tax expense 658 1,005 (12,967 ) 5,373
Income tax (benefit) 1,113 (597 ) (169
) (793 ) Net (loss)/income (455 ) 1,602 (12,798 ) 6,166
Less: Net income attributable to
non-redeemable non-controlling interest
780 941 1,712
4,029 Net (loss)/income attributable to JMP Group
$
(1,235
) $ 661
$
(14,510
) $ 2,137 Net (loss)/income attributable to JMP Group
per share: Basic
$
(0.06
) $ 0.03
$
(0.67
) $ 0.10 Diluted
$
(0.06
) $ 0.03
$
(0.67
) $ 0.10 Weighted average common shares outstanding: Basic
21,525 20,946 21,583 21,117 Diluted 21,525 21,901 21,583 21,796
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171101006240/en/
Investor RelationsJMP Group LLCAndrew Palmer,
415-835-8978apalmer@jmpg.comorMedia RelationsDukas Linden
Public Relations, Inc.Seth Linden, 212-704-7385seth@dlpr.comBen
Jaffe, 212-704-7385ben@dlpr.com
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