JMP Group LLC (NYSE: JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter ended March 31, 2018.
- The net loss attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $0.3
million, or $0.01 per diluted share, compared to a net loss of $4.7
million, or $0.22 per share, for the quarter ended March 31,
2017.
- Total net revenues on a GAAP basis were
$27.2 million, compared to $24.4 million for the quarter ended
March 31, 2017.
- The operating net loss was $1.6
million, or $0.07 per diluted share, compared to an operating net
loss of $2.1 million, or $0.09 per share, for the quarter ended
March 31, 2017. 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 $31.7
million, compared to $25.3 million for the quarter ended March 31,
2017. For more information about adjusted net revenues, including a
reconciliation to net revenues, see the section below titled
“Non-GAAP Financial Measures.”
“We had a disappointing first quarter as a result of some
unusual expenses and a net loss on our invested capital,” said
Chairman and Chief Executive Officer Joe Jolson. “Nonetheless, JMP
Securities continued its strong performance, contributing $0.08 per
share—and $0.38 per share on a trailing-four-quarters basis—as
equity capital markets fees were stable and strategic advisory
revenues rebounded strongly from year-ago levels. We are optimistic
about the remainder of the year, despite increased volatility and
the recent sell-off in the stock market. Although higher short-term
interest rates could hurt more cyclical sectors of the U.S.
economy, putting downward pressure on P/E multiples, we anticipate
that there will continue to be windows of opportunity for growth
companies to raise equity capital as 2018 progresses. During the
second quarter, we expect to fully redeploy the excess cash that
caused a severe drag on our operating earnings last year, adding to
our warehouse credit facility and positioning us to execute on our
fifth CLO in the next three to six months.
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $25.3 million, an increase of 34.1% from $18.9
million for the first quarter of 2017. JMP Securities’ operating
margin on adjusted net revenues was 9.5%, compared to 1.7% for the
first quarter of 2017. The asset management segment reported
adjusted net revenues of $4.0 million, a decrease of 24.9% from
$5.3 million for the first quarter of 2017. 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, in the first quarter of
2018, the company incurred transaction costs of $0.8 million
related to the planned initial public offering of Workspace
Property Trust, which was withdrawn in February. Additionally, the
company recognized a net loss of $0.7 million on an investment in a
hedge fund managed by Harvest Capital Strategies and recorded a
loan loss provision of $0.9 million in connection with a specific
credit underlying certain collateralized loan obligations.
Consequently, JMP Group recorded net corporate expense of $2.7
million for the quarter.
A summary of JMP Group’s operating net income per share by
segment for the quarter ended March 31, 2018, and for comparable
prior periods, is set forth below.
Quarter Ended ($ as shown) Mar. 31, 2018
Dec. 31, 2017 Mar. 31, 2017 Broker-dealer
$0.08 $0.12 $0.01 Asset management (0.03) 0.02 0.01 Operating
platform EPS 0.05 0.13 0.02 Net corporate income (0.12) 0.03 (0.11)
Operating EPS (diluted) ($0.07) $0.16 ($0.09)
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 $20.7 million, an increase of
51.9% from $13.6 million for the quarter ended March 31, 2017.
A summary of the company’s investment banking revenues and
transaction counts for the quarter ended March 31, 2018, and for
comparable prior periods, is set forth below.
Quarter Ended Mar. 31, 2018 Dec. 31,
2017 Mar. 31, 2017 ($ in thousands) Count
Revenues Count Revenues Count
Revenues Equity and debt origination 21
$11,862
(1)
21 $12,863 23 $10,470 Strategic advisory and private placements 7
8,801 4 9,647 3 3,130 Total 28
$20,663
(1)
25 $22,510 26 $13,600 (1)
Prior to 2018, JMP Group presented
investment banking revenues net of related expenses. In the quarter
ended March 31, 2018, the company adopted new accounting guidance
on revenue recognition, which resulted in the presentation of
investment banking revenues and related expenses on a gross basis
in the company’s financial statements. These related expenses were
$2.0 million for the quarter.
Brokerage
Net brokerage revenues were $4.7 million, a decrease of 11.8%
from $5.3 million for the quarter ended March 31, 2017.
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 $16.5 million, an increase of
4.9% from $15.8 million for the quarter ended March 31,
2017.
Asset Management
Asset management fees were $6.4 million, an increase of 8.7%
from $5.9 million for the quarter ended March 31, 2017.
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 $6.3
million, compared to $5.9 million for the quarter ended March 31,
2017. For more information about asset management-related fee
revenues, see the section below titled “Non-GAAP Financial
Measures.”
Client assets under management at March 31, 2018, totaled $1.8
billion, including $0.9 billion of funds managed by Harvest Capital
Strategies, JMP Asset Management and HCAP Advisors and
$1.0 billion par value of loans and cash managed by JMP Credit
Advisors. Client assets under management were $1.8 billion at
December 31, 2017, and $2.0 billion at March 31, 2017. Including
sponsored funds in which JMP Group owns an economic interest,
client assets under management totaled $5.3 billion at March 31,
2018.
At March 31, 2018, private capital, including corporate credit,
small business lending, venture capital and real estate-related
investments, represented 50.4% of client assets under management,
including sponsored funds.
Principal Transactions
Principal transactions generated a net realized and unrealized
loss of $3.6 million, compared to a net realized and unrealized
loss of $1.9 million for the quarter ended March 31, 2017.
Adjusted principal transaction revenues exclude certain
unrealized mark-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 and non-controlling interests in
CLO-related gains or losses. Adjusted principal transaction losses
were $1.3 million, compared to adjusted principal transaction
revenues of $0.6 million for the quarter ended March 31,
2017. 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 $3.0 million, compared to $1.0 million
for the quarter ended March 31, 2017. The year-over-year increase
was primarily due to a materially higher average loan balance for
the first quarter of 2018 than for the first quarter of 2017, due
to the reinvestment of funds that resulted from the liquidation of
JMP Credit Advisors CLO I in February 2017.
Repurchase or Early Retirement of Debt
For the quarter ended March 31, 2018, there was a loss of $2.6
million on the early retirement of debt, while for the quarter
ended March 31, 2017, there was a gain of $0.2 million on the
repurchase of debt. In February 2018, JMP Credit Advisors elected
to reset JMP Credit Advisors CLO III, lowering interest expense and
extending the CLO’s reinvestment period and maturity date in the
process. Redeeming the outstanding senior notes previously issued
by the CLO to effect the reset triggered the accelerated
amortization of remaining capitalized costs from the original
issuance of the debt, resulting in a loss for the quarter ended
March 31, 2018. In March 2017, JMP Group repurchased certain
subordinated notes previously issued by JMP Credit Advisors CLO II,
resulting in a gain for the quarter ended March 31, 2017.
Provision for Loan Losses
The net loan loss provision was $1.5 million and was both
reflective of specific loans deemed to be impaired and general in
nature, without regard to specific credits.
Expenses
Compensation and Benefits
Compensation and benefits expense was $24.3 million, compared to
$21.8 million for the quarter ended March 31, 2017. 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 74.9% of adjusted net
revenues, compared to 81.2% for the quarter ended March 31, 2017.
Further excluding specific loan loss provisions and compensation
expense related to hedge fund incentive fees, the compensation
ratio was 70.0%, compared to 75.5% for the quarter ended March 31,
2017.
For more information about compensation ratios, see the section
below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $10.3 million, compared to $7.8
million for the quarter ended March 31, 2017. A portion of the
increase was attributable to the adoption of new accounting
guidance on revenue recognition, which caused $2.0 million of
investment banking-related expenses to be presented on a gross
basis and to be included within non-compensation expense. In prior
periods, such expenses were presented as a deduction from
investment banking revenues.
Share Repurchase Activity
During the quarter ended March 31, 2018, JMP Group repurchased
195,875 shares of its common stock at an aggregate cost of $1.0
million, or $5.33 per share. As of April 1, 2018, approximately
800,000 shares were eligible for repurchase through year-end.
Personnel
At March 31, 2018, the company had 211 full-time employees,
compared to 230 at December 31, 2017, and 224 at March 31,
2017.
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 across 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 Revenues
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 Group and a CLO, (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, JMP Credit
Advisors CLO IV and JMP Credit Advisors CLO V and to loans held for
investment, which is required by GAAP;
- one-time expenses associated with the
redemption of senior notes due 2021 and of debt underlying JMP
Credit Advisors CLO III and the resulting acceleration of the
amortization of remaining capitalized issuance costs for each;
- 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 March 31, 2018, and for comparable
prior periods, is set forth below.
Quarter Ended (in thousands) Mar. 31, 2018
Dec. 31, 2017 Mar. 31, 2017 Revenues:
Non-interest revenues $28,294 $30,043 $24,462 Net interest income
3,008 2,443 972 Early retirement of debt (2,626) (775) 210
Provision for loan losses (1,465) (875) (1,266) Total net revenues
27,211 30,836 24,378 Add back/(subtract):
General loan loss provision/(reversal) –
collateralized loan obligations
329 680 (418) Early retirement of debt 1,318 1,067 -
Unrealized mark-to-market (gain) –
deferred compensation
(1) (6) (75)
Unrealized loss – real estate-related
depreciation and amortization
1,628 1,173 2,156
Unrealized mark-to-market loss – strategic
equity investments and warrants
638 1,816 419 Non-controlling interests 618 (1,265) (1,199)
Adjusted net revenues $31,741 $34,301 $25,261
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 March 31, 2018, and for comparable prior
periods, is set forth below.
Quarter Ended (in thousands) Mar. 31, 2018
Dec. 31, 2017 Mar. 31, 2017 Base
management fees: Revenues reported as asset management fees $3,061
$3,463 $4,045 Non-controlling interests (140 ) (122 ) (335 ) Total
base management fees 2,921 3,341 3,710
Incentive fees: Revenues reported as asset management fees 3,364
508 1,866 Non-controlling interests - - (113 ) Total
incentive fees 3,364 508 1,753 Other
income: Total fundraising and other fees 12 430 446
Asset management-related fee revenues $6,297
$4,279 $5,909
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,
(iii) net unrealized gains and losses on strategic equity
investments and warrants, and (iv) non-controlling interests in
CLO-related gains or losses, 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 March 31, 2018, and for comparable prior
periods, is set forth below.
Quarter Ended (in thousands) Mar. 31, 2018
Dec. 31, 2017 Mar. 31, 2017 Hedge fund
investments ($687) $832 $130 Investment in Harvest Capital Credit
Corporation (638) (1,816) (419) Other principal investments (2,294)
(1,845) (1,603) Total principal transaction revenues (3,619)
(2,829) (1,892) Add back/(subtract):
Unrealized mark-to-market (gain) –
deferred compensation
(1) (6) (75)
Unrealized loss – real estate-related
depreciation and amortization
1,628 1,173 2,156
Unrealized mark-to-market loss – strategic
equity investments and warrants
638 1,816 419 Non-controlling interests – CLO portfolios 71 - -
Total operating adjustments 2,336 2,983 2,500 Total adjusted
principal transaction revenues ($1,283) $154 $608
Company management utilizes adjusted principal transaction
revenue because it is a component of adjusted net revenue. The
exclusion of certain elements of principal transaction revenues, as
presented above, results in an adjusted measure that is included as
“Principal transactions” among JMP Group’s revenues in the non-GAAP
presentation of segment results of operations that appears below.
Management believes that adjusting principal transaction revenues
and total revenues in these ways is useful in that it allows for a
clearer understanding and comparison of JMP Group’s financial
results for the periods presented.
Compensation Ratio
A compensation ratio expresses compensation expense as a
percentage of net revenues in a given period. As utilized by JMP
Group, an adjusted compensation ratio is a non-GAAP financial
measure that employs adjusted net revenues as the denominator in
its calculation. Furthermore, this ratio adjusts the financial
impact of certain compensation-related and transaction-related
expenses that are or are not recognized under GAAP. In particular,
the adjusted compensation ratio reverses compensation expense and
unrealized mark-to-market gains or losses related to share-based
awards, deferred compensation and non-controlling interests (so
that the compensation expenses used in the numerator correspond to
the adjusted net revenues generated in the periods presented). In
addition, the company presents a further adjusted compensation
ratio that excludes any compensation related to incentive fees
generated by hedge funds, a majority of which is passed through to
the funds’ investment teams if earned, as well as any specific loan
loss provisions.
A statement of JMP Group’s compensation ratio for the quarter
ended March 31, 2018, and for comparable prior periods, is set
forth below.
Quarter Ended ($ in thousands) Mar. 31, 2018
Dec. 31, 2017 Mar. 31, 2017
Compensation Ratio Adjusted net revenues $31,741 $34,301 $25,261
Compensation and benefits $24,261 $21,588 $21,798
Subtract/(add back): Compensation expense – stock options and SARs
(97) (188) 67 Compensation expense – RSUs 160 213 239 Compensation
expense – deferred compensation 81 (811) 654
Unrealized mark-to-market gain – deferred
compensation
1 6 75 Compensation expense – non-controlling interest 352 296 260
Adjusted compensation and benefits $23,764 $22,072 $20,503
Adjusted ratio of compensation expense to revenues 74.9% 64.3%
81.2% Compensation Ratio Excluding Incentive Fees and Loss
Provision Adjusted net revenues $31,741 $34,301 $25,261
Subtract/(add back): Compensation expense – hedge fund incentive
fees 3,025 270 1,471 Specific loan loss provision (893) (128)
(1,413)
Adjusted net revenues, excluding hedge
fund incentive fees and specific loss provision
$29,609 $34,159 $25,203 Adjusted compensation and benefits
$23,764 $22,072 $20,503 Subtract: Compensation expense – hedge fund
incentive fees 3,025 270 1,471
Adjusted compensation and benefits,
excluding hedge fund incentive fees
$20,739 $21,802 $19,032
Adjusted ratio of compensation expense to
revenues, excluding hedge fund incentive fees and specific loss
provision
70.0% 63.8% 75.5%
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 issued by JMP Group and a
CLO, (iv) excludes transaction costs related to a CLO, (v) excludes
amortization expense related to a CLO, (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, JMP Credit
Advisors CLO IV and JMP Credit Advisors CLO V and to loans held for
investment, which is required by GAAP;
- one-time expenses associated with the
redemption of debt underlying JMP Credit Advisors CLO III (in
the first quarter of 2018) and of senior notes due 2021 (in the
fourth quarter of 2017) and the resulting acceleration of the
amortization of remaining capitalized issuance costs for each;
- one-time transaction costs related to
the refinancing of notes issued by JMP Credit Advisors
CLO III;
- 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 26% 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 and year ended December 31, 2017, and for
comparable prior periods is set forth below.
Quarter Ended Mar. 31, 2018 Dec. 31,
2017 Mar. 31, 2017 Net income/(loss)
attributable to JMP Group ($283) ($1,373) ($4,740) Add
back/(subtract): Income tax expense/(benefit) (5,568) 1,913 (1,084)
Income/(loss) before taxes (5,851) 540 (5,824) Add
back/(subtract): Compensation expense – stock options and SARs (97)
(188) 67 Compensation expense – RSUs 160 213 239 Compensation
expense – net deferred compensation 81 (811) 654
General loan loss provision/(reversal) –
collateralized loan obligations
329 680 (418) Early retirement of debt 1,318 1,067 - Restructuring
costs – CLO portfolios 64 15 - Amortization of intangible asset –
CLO III 69 69 69
Unrealized loss – real estate-related
depreciation and amortization
1,628 1,173 2,156
Unrealized mark-to-market loss – strategic
equity investments and warrants
638 1,816 419 Operating income/(loss) before taxes (1,661) 4,574
(2,638)
Income tax expense/(benefit)
(30)
983
(555)
Operating net income/(loss) ($1,631) $3,591 ($2,083)
Operating net income/(loss) per share: Basic ($0.08) $0.17 ($0.10)
Diluted (1) ($0.07) $0.16 ($0.09) Weighted average shares
outstanding: Basic 21,666 21,568 21,573 Diluted (1) 21,811 22,017
21,988 (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 quarters ended March 31, 2018,
December 31, 2017, and March 31, 2017, was 21,665,652, 21,567,723
and 21,572,686, respectively, equivalent to the weighted average
number of basic shares outstanding, due to the company’s net loss
for these periods. Under GAAP, in a period of net loss, dilutive
securities are disregarded in the calculation of earnings per
share.
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 III, (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 26% 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 March 31, 2018, is set forth below.
Quarter Ended March 31, 2018
Net Broker- Asset
Operating Corporate Elimin- JMP (in thousands, except per share
amounts) Dealer Mgmt. Platforms Income ations Group
Revenues: Investment banking $20,661 - $20,661 - $2 $20,663
Brokerage 4,664 - 4,664 - - 4,664 Asset management-related fees 4
$3,989 3,993 $3,285 (981) 6,297 Principal transactions - - -
(1,283) - (1,283) Gain on sale and payoff of loans - - - (161) -
(161) Net dividend income - - - 327 - 327 Net interest income - - -
2,127 - 2,127 Provision for loan losses - - - (893) - (893)
Adjusted net revenues 25,329 3,989 29,318 3,402 (979) 31,741
Expenses: Non-interest expense/(income) 22,916 5,020 27,936 6,447
(981) 33,402 Operating income/(loss) before taxes 2,413 (1,031)
1,382 (3,045) 2 (1,661) Income tax expense/(benefit) 627
(268) 359 (389) - (30) Operating net income/(loss) $1,786 ($763)
$1,023 ($2,656) $2 ($1,631) Operating net income/(loss) per
share: Basic $0.08 ($0.04) $0.05 ($0.12) $0.00 ($0.08) Diluted
$0.08 ($0.03) $0.05 ($0.12) $0.00 ($0.07)
Book Value per Share
At March 31, 2018, JMP Group’s book value per share was $4.34.
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 $5.23, as set forth below.
(in thousands, except per share amounts) Mar. 31,
2018 Dec. 31, 2017 Mar. 31, 2017
Shareholders' equity $93,418 $96,335 $114,174
Accumulated unrealized loss – real
estate-related depreciation and amortization
$13,578 $11,950 $6,461
Accumulated general loan loss provision –
collateralized loan obligations
5,787 5,458 3,662 Adjusted shareholders' equity $112,783 $113,743
$124,297 Book value per share $4.34 $4.43 $5.27 Adjusted
book value per share $5.23 $5.23 $5.74 Basic shares
outstanding 21,547 21,729 21,659 Quarterly operating ROE (1)
(6.9%) 14.6% (7.1%) LTM operating ROE (1) 4.7% 4.1% 5.2%
Quarterly adjusted operating ROE (1) (5.8%) 12.5% (6.6%) LTM
adjusted operating ROE (1) 4.1% 3.6% 4.9% (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
shareholders’ 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, 2017, as filed with the U.S. Securities and Exchange Commission
on March 28, 2018, 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, 2017, 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, May 3, 2018. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
9259569.
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) Mar. 31, 2018
Dec. 31, 2017 Assets Cash and cash equivalents
$47,858 $85,594 Restricted cash and deposits 70,419 51,727
Marketable securities owned, at fair value 19,640 20,825 Other
investments 17,033 27,984 Loans held for investment, net of
allowance for loan losses 145,253 83,948
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
754,632 765,583 Other assets 46,983 40,965 Total assets $1,101,818
$1,076,626 Liabilities and Shareholders' Equity Liabilities:
Marketable securities sold, but not yet purchased, at fair value
$6,280 $7,919 Accrued compensation 10,064 43,131 Asset-backed
securities issued, net of issuance costs 735,058 738,248 CLO V
warehouse facility 112,800 61,250 Bond payable, net of issuance
costs 93,069 93,103 Note payable 8,829 - Repurchase agreement 3,878
- Other liabilities 25,704 22,796 Total liabilities 995,682 966,447
Shareholders' Equity: Total JMP Group LLC shareholders'
equity 93,418 96,335 Non-redeemable non-controlling interest 12,718
13,844 Total equity 106,136 110,179 Total liabilities and
shareholders' equity $1,101,818 $1,076,626
JMP GROUP LLC
Consolidated Statements of Operations
(Unaudited)
Quarter Ended
(in thousands, except per share
amounts)
Mar. 31, 2018 Mar. 31, 2017
Revenues:
Investment banking $20,662 $13,600 Brokerage 4,664 5,286 Asset
management fees 6,425 5,911 Principal transactions (3,620) (1,893)
Gain/(loss) on sale and payoff of loans (182) 847 Net dividend
income 296 266 Other income 49 445 Non-interest revenues 28,294
24,462 Interest income 12,710 9,067 Interest expense (9,702)
(8,095) Net interest income 3,008 972 Gain/(loss) on
repurchase or early retirement of debt (2,626) 210 Provision for
loan losses (1,465) (1,266) Total net revenues 27,211 24,378
Non-interest expenses:
Compensation and benefits 24,261 21,798 Administration 2,233 1,819
Brokerage, clearing and exchange fees 777 759 Travel and business
development 954 915 Managed deal expenses 1,566 - Communications
and technology 1,062 1,053 Occupancy 1,117 1,111 Professional fees
1,905 1,162 Depreciation 264 311 Other 387 677 Total non-interest
expense 34,526 29,605
Net income/(loss) before income tax
(7,315) (5,227)
Income tax expense/(benefit)
(5,568) (1,084) Net income/(loss) (1,747) (4,143)
Less: Net income/(loss) attributable to
non-redeemable non-controlling interest
(1,464) 597 Net income/(loss) attributable to JMP Group ($283)
($4,740) Net income/(loss) attributable to JMP Group per
share: Basic ($0.01) ($0.22) Diluted ($0.01) ($0.22)
Weighted average common shares outstanding: Basic 21,666 21,573
Diluted 21,666 21,573
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180502006423/en/
Investor Relations ContactJMP Group LLCAndrew Palmer,
415-835-8978apalmer@jmpg.comMedia Relations ContactsDukas
Linden Public Relations, Inc.Zach Leibowitz,
646-722-6528zach@dlpr.comorAlyssa Noud,
646-722-6525alyssa@dlpr.com
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