JMP Group LLC (NYSE: JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter and full fiscal year ended December 31, 2017.
- The net loss attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $1.4
million, or $0.06 per diluted share, compared to net income of $0.8
million, or $0.04 per share, for the quarter ended December 31,
2016. For the year ended December 31, 2017, the net loss was $15.9
million, or $0.74 per share, compared to net income of $2.9
million, or $0.13 per share, for the year ended December 31,
2016.
- Total net revenues on a GAAP basis were
$30.3 million and $109.9 million for the quarter and year ended
December 31, 2017, respectively, compared to $36.0 million and
$135.0 million for the quarter and year ended December 31, 2016,
respectively.
- Operating net income was $3.6 million,
or $0.16 per diluted share, compared to $2.8 million, or $0.13 per
share, for the quarter ended December 31, 2016. For the year ended
December 31, 2017, operating net income was $4.3 million, or $0.20
per share, compared to $10.5 million, or $0.48 per share, for the
year ended December 31, 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 $34.2
million and $123.4 million for the quarter and year ended December
31, 2017, respectively, compared to $35.5 million and $130.2
million for the quarter and year ended December 31, 2016,
respectively. 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 better-than-expected fourth quarter, with operating
earnings of $0.16 per share, which, for the first time since 2016,
included a positive contribution from net corporate income of $0.03
per share,” said Chairman and Chief Executive Officer Joe Jolson.
“JMP Securities continued to produce at near-record levels,
contributing $0.12 per share—an annualized ROE of 38%—and our asset
management subsidiaries returned to profitability, adding $0.02 per
share to operating earnings. Importantly, with net investment
income of $0.09 per share at our publicly traded partnership, we
covered our quarterly cash distribution for the first time in
2017.
“Early in 2017, our performance suffered from a depressed equity
capital markets environment and from the turnover of our first two
CLOs, which diminished asset management fee income and challenged
us to redeploy a material amount of cash that was funded with 8%
long-term debt. As the year progressed, our operating earnings
improved steadily as we reinvested our capital back into our CLO
business and U.S. ECM activity recovered. In a better environment,
JMP Securities achieved impressive market share gains and grew its
ECM revenues 83% year-over-year, while U.S. equity underwriting
fees increased 27% across the industry.
“We are off to a good start in 2018, with record investment
banking revenues for the month of January. Also, we recently priced
the reset of CLO III, which we expect to close the week of February
19. We hope to execute on a new CLO around mid-year, which would
complete the reinvestment of our capital in our credit business and
would return our asset management segment to more consistent
profitability.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $28.5 million, an increase of 39.3% from $20.5
million for the fourth quarter of 2016. JMP Securities’ operating
margin on adjusted net revenues was 14.7%, compared to 4.3% for the
fourth quarter of 2016. The asset management segment reported
adjusted net revenues of $4.9 million, a decrease of 19.5% from
$6.1 million for the fourth 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 during 2017, JMP Group
operated with an unusually large investable cash balance throughout
the year, resulting in net corporate expense of $2.5 million for
2017. However, for the fourth quarter, with a portion of the
available cash redeployed in the second half of the year, the
company reported net corporate income of $0.6 million, compared to
$1.5 million for the fourth quarter of 2016.
A summary of JMP Group’s operating net income per share by
segment for the quarter and year ended December 31, 2017, and for
comparable prior periods, is set forth below.
Quarter Ended Year Ended ($ as shown) Dec. 31, 2017
Sept. 30, 2017 Dec. 31, 2016 Dec. 31, 2017
Dec. 31, 2016 Broker-dealer $0.12 $0.13 $0.02 $0.31 $0.05 Asset
management 0.02 (0.00 ) 0.04 0.01 0.07 Operating platform
EPS 0.13 0.13 0.06 0.31 0.13 Net corporate income 0.03 (0.02 ) 0.07
(0.12 ) 0.35 Operating EPS (diluted) $0.16 $0.10 $0.13 $0.20
$0.48
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 $22.5 million and $77.3 million
for the quarter and year ended December 31, 2017, respectively,
compared to $13.6 million and $55.4 million for the quarter and
year ended December 31, 2016, respectively.
A summary of the company’s investment banking revenues and
transaction counts for the quarter and year ended December 31,
2017, and for comparable prior periods, is set forth below.
Quarter Ended Year Ended Dec. 31, 2017 Sept.
30, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016 ($
in thousands) Count Revenues Count Revenues Count
Revenues Count Revenues Count Revenues
Equity and debt origination
21 $12,863 22 $15,639 15 $6,704 103 $53,355 54 $24,340
Strategic advisory and private
placements
4 9,647 6 6,446 6 6,930 18 23,968 25 31,013 Total 25 $22,510 28
$22,085 21 $13,634 121 $77,323 79 $55,353
Brokerage
Net brokerage revenues were $6.0 million and $21.1 million for
the quarter and year ended December 31, 2017, respectively,
compared to $6.8 million and $23.8 million for the quarter and year
ended December 31, 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 $18.9 million and $74.5 million
for the quarter and year ended December 31, 2017, respectively,
compared to $13.5 million and $48.1 million for the quarter and
year ended December 31, 2016, respectively.
Asset Management
Asset management fees were $4.0 million, compared to $7.8
million for the fourth quarter of 2016. For the year ended December
31, 2017, asset management fees were $18.0 million, including $2.5
million of incentive fees, compared to $26.8 million, including
$10.5 million of incentive fees, for the year ended December 31,
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 $4.3
million and $18.5 million for the quarter and year ended December
31, 2017, respectively, compared to $8.4 million and $26.2 million
for the quarter and year ended December 31, 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 December 31, 2017, totaled
$2.0 billion, including $1.1 billion of funds managed by Harvest
Capital Strategies, JMP Asset Management and HCAP Advisors and
$0.9 billion par value of loans and cash managed by JMP Credit
Advisors. Client assets under management were $2.0 billion at
September 30, 2017, and $2.2 billion at December 31, 2016.
Including sponsored funds in which JMP Group owns an economic
interest, client assets under management totaled $5.2 billion at
December 31, 2017.
At December 31, 2017, private capital, including corporate
credit, small business lending, venture capital and real
estate-related investments, represented 52.2% of client assets
under management, including sponsored funds.
Principal Transactions
Principal transactions generated a net realized and unrealized
loss of $3.0 million, compared to a net realized and unrealized
gain of $5.9 million for the fourth quarter of 2016. For the year
ended December 31, 2017, principal transactions generated a
net realized and unrealized loss of $6.6 million, compared to a net
realized and unrealized gain of $16.2 million for the year ended
December 31, 2016.
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. Adjusted principal transaction
revenues were -$14 thousand and $3.2 million for the quarter and
year ended December 31, 2017, respectively, compared to $6.1
million and $18.5 million for the quarter and year ended
December 31, 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 $7.1 million for the
quarter and year ended December 31, 2017, respectively, compared to
$2.3 million and $14.0 million for the quarter and year ended
December 31, 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.
In addition, the fourth quarter of 2017 included $0.3 million of
interest expense that will not recur. During the quarter, JMP Group
issued 7.25% senior notes due 2027 and redeemed 7.25% senior notes
due 2021. The company announced the redemption of the 2021 notes on
November 28, 2017, and concluded the redemption on December 28,
2017. During the 30-day period in between, the company continued to
pay interest to holders of the 2021 notes while also starting to
pay interest to holders of the 2027 notes, which were priced on
November 20, 2017. The interest paid on the 2021 notes during that
period equaled $0.3 million. With the 2027 notes now
outstanding and the 2021 notes now redeemed, there will not be a
quarter in the future during which JMP Group recognizes interest
expense from both securities.
Provision for Loan Losses
The net loan loss provision for the quarter was $0.9 million and
was primarily general in nature, not reflective of specific loans
deemed to be impaired.
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 of $5.5 million.
In the fourth quarter of 2017, JMP Group redeemed 7.25% senior
notes due 2021. The redemption of the notes accelerated the
amortization of remaining capitalized issuance costs of $0.8
million. Additionally, non-recurring interest expense of $0.3
million resulted from debt service on the 2021 notes prior to their
redemption in the fourth quarter but following the issuance of
7.25% senior notes due 2027, as described above in the section
titled “Net Interest Income.”
Expenses
Compensation and Benefits
Compensation and benefits expense was $21.5 million, compared to
$31.0 million for the fourth 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 64.3% of adjusted net
revenues, compared to 73.2% for the fourth quarter of 2016. Further
excluding specific loan loss provisions and compensation expense
related to hedge fund incentive fees, the compensation ratio was
63.8%, compared to 69.5% for the fourth quarter of 2016.
For the year ended December 31, 2017, compensation and benefits
expense was $90.6 million, compared to $101.2 million for the year
ended December 31, 2016. With regard to annually awarded
compensation, compensation and benefits expense was 71.7% of
adjusted net revenues, compared to 71.5% for the year ended
December 31, 2016. Further excluding specific loan loss provisions
and compensation expense related to hedge fund incentive fees, the
compensation ratio was 69.8%, compared to 68.9% for the year ended
December 31, 2016.
For more information about compensation ratios, see the section
below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $7.9 million and $31.4 million for
the quarter and year ended December 31, 2017, respectively,
compared to $7.6 million and $30.9 million for the quarter and year
ended December 31, 2016, respectively.
Share Repurchase Activity
During the quarter ended December 31, 2017, JMP Group
repurchased 78,749 shares of its common stock at an aggregate cost
of $0.4 million, or $5.38 per share. As of January 1, 2018,
1,000,000 shares were eligible for repurchase during the upcoming
year under the company’s most recent repurchase authorization,
which was announced on December 13, 2017.
Personnel
At December 31, 2017, the company had 230 full-time employees,
compared to 230 at September 30, 2017, and 228 at December 31,
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 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 II 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 and year ended December 31, 2017, and for
comparable prior periods, is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2017
Sept. 30, 2017 Dec. 31, 2016 Dec. 31, 2017
Dec. 31, 2016 Revenues: Non-interest revenues $29,875
$30,308 $34,336 $113,231 $122,569 Net interest income 2,095 2,089
2,294 7,109 13,994 Early retirement of debt (775 ) - - (6,107 ) -
Provision for loan losses (875 ) (368 ) (606 ) (4,363 ) (1,586 )
Total net revenues 30,320 32,029 36,024 109,870 134,977 Add
back/(subtract):
General loan loss (reversal)/provision –
collateralized loan obligations
680 (136 ) 349 1,377 240 Early retirement of debt 1,067 - - 6,499 -
Unrealized mark-to-market (gain)/loss –
deferred compensation
(6 ) (122 ) (276 ) 31 (382 )
Unrealized loss – real estate-related
depreciation and amortization
1,173 2,571 1,718 7,645 4,241
Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants
1,816 (191 ) (1,211 ) 2,113 (1,540 ) Non-controlling interests (826
) (1,202 ) (1,115 ) (4,102 ) (7,379 ) Adjusted net revenues
$34,224 $32,949 $35,489 $123,433
$130,157
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 and year ended December 31, 2017, and for
comparable prior periods, is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2017
Sept. 30, 2017 Dec. 31, 2016 Dec. 31, 2017
Dec. 31, 2016 Base management fees:
Revenues reported as asset management
fees
$3,463 $3,941 $3,851 $15,548 $16,285 Non-controlling interests (122
) (152 ) (337 ) (782 ) (1,418 ) Total base management fees 3,341
3,789 3,514 14,766 14,867
Incentive fees:
Revenues reported as asset management
fees
508 73 3,983 2,501 10,506 Non-controlling interests - -
43 (128 ) (582 ) Total incentive fees 508 73
4,026 2,373 9,924 Other income:
Total fundraising and other fees 430 282 872
1,352 1,408
Asset management-related fee revenues
$4,279 $4,144 $8,412 $18,491 $26,199
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 and year ended December 31, 2017, and for
comparable prior periods, is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2017
Sept. 30, 2017 Dec. 31, 2016 Dec. 31, 2017
Dec. 31, 2016 Hedge fund investments $832 $687 $200 $2,001
$272
Investment in Harvest Capital Credit
Corporation
(1,816 ) 191 1,211 (2,113 ) $1,525 Other principal investments
(2,013 ) (2,269 ) 4,446 (6,493 ) 14,384 Total
principal transaction revenues (2,997 ) (1,391 ) 5,857
(6,605 ) 16,181 Add back/(subtract):
Unrealized mark-to-market (gain)/loss –
deferred compensation
(6 ) (122 ) (276 ) 31 (382 )
Unrealized loss – real estate-related
depreciation and amortization
1,173 2,571 1,718 7,645 4,241
Unrealized mark-to-market (gain)/loss –
strategic equity investments and warrants
1,816 (191 ) (1,211 ) 2,113 (1,540 ) Total operating
adjustments 2,983 2,258 231 9,789 2,319
Total adjusted principal transaction
revenues
($14 ) $867 $6,088 $3,184 $18,500
Company management utilizes adjusted principal transaction
revenue because it is a component of adjusted net revenue. The
exclusion of certain elements of principal transaction revenues, as
presented above, results in an adjusted measure that is included as
“Principal transactions” among JMP Group’s revenues in the non-GAAP
presentation of segment results of operations that appears below.
Management believes that adjusting principal transaction revenues
and total revenues in these ways is useful in that it allows for a
clearer understanding and comparison of JMP Group’s financial
results for the periods presented.
Compensation Ratio
A compensation ratio expresses compensation expense as a
percentage of net revenues in a given period. As utilized by JMP
Group, an adjusted compensation ratio is a non-GAAP financial
measure that employs adjusted net revenues as the denominator in
its calculation. Furthermore, this ratio adjusts the financial
impact of certain compensation-related and transaction-related
expenses that are or are not recognized under GAAP. In particular,
the adjusted compensation ratio reverses compensation expense and
unrealized mark-to-market gains or losses related to share-based
awards, deferred compensation and non-controlling interests (so
that the compensation expenses used in the numerator correspond to
the adjusted net revenues generated in the periods presented). In
addition, the company presents a further adjusted compensation
ratio that excludes any compensation related to incentive fees
generated by hedge funds, a majority of which is passed through to
the funds’ investment teams if earned, as well as any specific loan
loss provisions.
A statement of JMP Group’s compensation ratio for the quarter
and year ended December 31, 2017, and for comparable prior periods,
is set forth below.
Quarter Ended Year Ended ($ in thousands) Dec. 31,
2017 Sept. 30, 2017 Dec. 31, 2016 Dec. 31, 2017
Dec. 31, 2016 Compensation Ratio Adjusted net
revenues $34,224 $32,949 $35,489 $123,433
$130,157 Compensation and benefits $21,537
$24,563 $30,960 $90,550 $101,233 Subtract/(add back):
Compensation expense – stock options and
SARs
(188 ) 54 483 (334 ) 1,253
Compensation expense – RSUs
213 206 233 954 746
Compensation expense – deferred
compensation
(811 ) 436 3,742 457 4,788
Unrealized mark-to-market gain/(loss) –
deferred compensation
6 122 276 (31 ) 382
Compensation expense – non-controlling
interest
296 263 262 1,058 1,018 Adjusted
compensation and benefits $22,021 $23,482 $25,964
$88,446 $93,046
Adjusted ratio of compensation expense to
revenues
64.3 % 71.3 % 73.2 % 71.7 % 71.5 % Compensation Ratio
Excluding Incentive Fees and Loss Provision Adjusted net
revenues $34,224 $32,949 $35,489 $123,433 $130,157 Subtract/(add
back):
Compensation expense – hedge fund
incentive fees
270 61 4,055 1,802 9,163 Specific loan loss provision (128 ) (593 )
(81 ) (2,543 ) (876 )
Adjusted net revenues, excluding hedge
fund incentive fees and specific loss provision
$34,082 $33,481 $31,515 $124,174
$121,870 Adjusted compensation and benefits $22,021
$23,482 $25,964 $88,446 $93,046 Subtract:
Compensation expense – hedge fund
incentive fees
270 61 4,055 1,802 9,163
Adjusted compensation and benefits,
excluding hedge fund incentive fees
$21,751 $23,421 $21,909 $86,644 $83,883
Adjusted ratio of compensation expense to
revenues, excluding hedge fund incentive fees and specific loss
provision
63.8 % 70.0 % 69.5 % 69.8 % 68.8 %
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 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, 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 II and the resulting acceleration of the
amortization of remaining capitalized issuance costs for each;
- 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 in the second quarter;
- 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 and year ended December 31, 2017, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended Dec. 31, 2017 Sept.
30, 2017 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2016
Net (loss)/income attributable to JMP Group ($1,400 )
($1,235 ) $789 ($15,910 ) $2,926 Add back/(subtract): Income
tax expense/(benefit) 1,913 1,113 (3,855 ) 1,744
(4,648 ) Income/(loss) before taxes 513 (122 ) (3,066 )
(14,166 ) (1,722 ) Add back/(subtract):
Compensation expense – stock options and
SARs
(188 ) 54 483 (334 ) 1,253
Compensation expense – RSUs
213 206 233 954 746
Compensation expense – net deferred
compensation
(811 ) 436 3,742 457 4,788
General loan loss provision/(reversal) –
collateralized loan obligations
680 (136 ) 349 1,377 240 Early retirement of debt 1,067 - - 6,499 -
Restructuring costs – CLO portfolios 15 14 - 315 - Amortization of
intangible asset – CLO III 69 69 138 276 138
Unrealized loss – real estate-related
depreciation and amortization
1,173 2,571 1,718 7,645 4,241
Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants
1,816 (191 ) (1,211 ) 2,113 (1,540 ) Operating income
before taxes 4,547 2,901 2,386 5,136 8,144 Income tax
(expense)/benefit (983 ) (610 ) 452 (805 ) 2,316
Operating net income $3,564 $2,291 $2,838
$4,331 $10,460 Operating net income per share:
Basic $0.17 $0.11 $0.13 $0.20 $0.50 Diluted (1) $0.16 $0.10 $0.13
$0.20 $0.48 Weighted average shares outstanding: Basic
21,568 21,525 21,071 21,579 21,105 Diluted (1) 22,017 22,058 22,018
21,980 21,765 (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 year ended December
31, 2017, was 21,567,723 and 21,579,107, 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. On a GAAP basis, the weighted average number
of diluted shares outstanding for the quarter year ended December
31, 2016, periods in which there was net income, was 22,024,335 and
21,841,293, 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 December 31, 2017, is set forth
below.
Quarter Ended December 31, 2017 Net
Broker- Asset Operating Corporate Elimin- JMP (in
thousands, except per share amounts) Dealer Mgmt. Platforms Income
ations Group Revenues: Investment banking $22,516 - $22,516
- ($7 ) $22,509 Brokerage 6,002 - 6,002 - - 6,002 Asset
management-related fees 7 $4,923 4,930 $194 (845 ) 4,279 Principal
transactions - - - (14 ) - (14 ) Gain on sale and payoff of loans -
- - (251 ) - (251 ) Net dividend income - - - 370 - 370 Net
interest income - - - 1,457 - 1,457 Provision for loan losses - - -
(128 ) - (128 ) Adjusted net revenues 28,525 4,923 33,448
1,628 (852 ) 34,224 Expenses: Non-interest expense/(income)
24,338 4,353 28,691 1,831 (845 ) 29,677 Operating
income/(loss) before taxes 4,187 570 4,757 (203 ) (7 ) 4,547
Income tax expense/(benefit) 1,591 217 1,808 (825 ) - 983
Operating net income/(loss) $2,596 $353 $2,949 $622
($7 ) $3,564 Operating net income/(loss) per share:
Basic $0.12 $0.02 $0.14 $0.03 ($0.00 ) $0.17 Diluted $0.12 $0.02
$0.13 $0.03 ($0.00 ) $0.16
A statement of JMP Group’s operating net income on a segment
basis for the year ended December 31, 2017, is set forth below.
Year Ended December 31, 2017 Net
Broker- Asset Operating Corporate Elimin- JMP (in thousands,
except per share amounts) Dealer Mgmt. Platforms Income ations
Group Revenues: Investment banking $77,329 - $77,329 - ($7)
$77,322 Brokerage 21,129 - 21,129 - - 21,129 Asset
management-related fees 11 $19,888 19,899 $2,021 (3,429) 18,491
Principal transactions - - - 3,186 - 3,186 Gain on sale and payoff
of loans - - - 892 - 892
Gain on repurchase of asset-backed
securities issued
- - - 210 - 210 Net dividend income - - - 1,189 - 1,189 Net
interest income - - - 3,557 - 3,557 Provision for loan losses - - -
(2,543) - (2,543) Adjusted net revenues 98,469 19,888 118,357 8,512
(3,436) 123,433 Expenses: Non-interest expense/(income)
87,572 19,699 107,271 14,455 (3,429) 118,297 Operating
income/(loss) before taxes 10,897 189 11,086 (5,943) (7) 5,136
Income tax expense/(benefit) 4,142 72 4,214 (3,409) - 805
Operating net income/(loss) $6,755 $117 $6,872 ($2,534) ($7) $4,331
Operating net income/(loss) per share: Basic $0.31 $0.01
$0.32 ($0.12) ($0.00) $0.20 Diluted $0.31 $0.01 $0.31 ($0.12)
($0.00) $0.20
Book Value per Share
At December 31, 2017, JMP Group’s book value per share was
$4.43. 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) Dec, 31, 2017
Sept. 30, 2017 Dec. 31, 2016 Shareholders'
equity $96,308 $100,710 $119,377
Accumulated unrealized loss – real
estate-related depreciation and amortization
$11,950 $10,777 $4,304
Accumulated general loan loss provision –
collateralized loan obligations
5,458 4,778 4,080 Adjusted shareholders' equity $113,716 $116,265
$127,761 Book value per share $4.43 $4.69 $5.56
Adjusted book value per share
$5.23 $5.42 $5.95 Basic shares outstanding 21,729 21,461
21,457 Quarterly operating ROE (1) 14.5% 8.9% 9.4% LTM
operating ROE (1) 4.0% 3.2% 8.6% Quarterly adjusted
operating ROE (1) 12.4% 7.8% 8.9% LTM adjusted operating ROE (1)
3.6% 2.9% 8.2% (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, 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. EST on Thursday, February 15, 2018.
To participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
2786428.
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) Dec. 31, 2017 Dec. 31,
2016 Assets Cash and cash equivalents $87,771 $85,492
Restricted cash and deposits 51,727 227,656 Marketable securities
owned, at fair value 20,825 18,722 Other investments 27,816 32,869
Loans held for sale, at fair value - 32,488 Loans held for
investment, net of allowance for loan losses 83,948 1,930
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
765,583 654,127 Cash collateral posted for total return swap -
25,000 Deferred tax assets 5,954 7,942 Other assets 32,834 39,604
Total assets $1,076,458 $1,125,830 Liabilities and
Shareholders' Equity Liabilities: Marketable securities
sold, but not yet purchased, at fair value $7,919 $4,747 Accrued
compensation 43,131 36,158 Asset-backed securities issued, net of
issuance costs 738,248 825,854 CLO V warehouse facility 61,250 -
Bond payable, net of issuance costs 93,103 91,785 Deferred tax
liability 2,188 3,872 Other liabilities 20,905 28,120 Total
liabilities 966,744 990,536 Shareholders' Equity: Total JMP
Group LLC shareholders' equity 96,308 119,377 Non-redeemable
non-controlling interest 13,406 15,917 Total equity 109,714 135,294
Total liabilities and shareholders' equity $1,076,458 $1,125,830
JMP GROUP LLC
Consolidated Statements of
Operations
(Unaudited) Quarter Ended Year Ended (in thousands,
except per share amounts) Dec. 31, 2017 Dec. 31, 2016 Dec.
31, 2017 Dec. 31, 2016 Revenues: Investment banking
$22,509 $13,634 $77,322 $55,353 Brokerage 6,002 6,834 21,129 23,755
Asset management fees 3,971 7,833 18,049 26,791 Principal
transactions (2,997 ) 5,856 (6,605 ) 16,182
(Loss)/gain on sale and payoff of
loans
(411 ) (957 ) 797 (1,918 ) Net dividend income 371 263 1,188 999
Other income 430 873 1,351 1,407
Non-interest revenues 29,875 34,336 113,231
122,569 Interest income 11,496 10,787 41,159 46,784
Interest expense (9,401 ) (8,493 ) (34,050 ) (32,790 ) Net interest
income 2,095 2,294 7,109 13,994
Loss on repurchase or early retirement of debt (775 ) - (6,107 ) -
Provision for loan losses (875 ) (606 ) (4,363 ) (1,586 ) Total net
revenues 30,320 36,024 109,870 134,977
Non-interest expenses: Compensation and benefits 21,537
30,960 90,550 101,233 Administration 1,465 1,384 7,464 7,024
Brokerage, clearing and exchange fees 921 802 3,209 3,110 Travel
and business development 1,299 1,223 4,034 4,771 Communications and
technology 1,158 1,079 4,308 4,172 Occupancy 1,079 1,048 4,418
3,901 Professional fees 1,298 1,154 4,407 4,399 Depreciation 271
312 1,162 1,280 Other 417 621 2,410 2,273
Total non-interest expense 29,445 38,583
121,962 132,163 Net income/(loss) before
income tax expense 875 (2,559 ) (12,092 ) 2,814 Income tax
(benefit) 1,913 (3,855 ) 1,744 (4,648 ) Net
(loss)/income (1,038 ) 1,296 (13,836 ) 7,462
Less: Net income attributable to
non-redeemable non-controlling interest
362 507 2,074 4,536 Net (loss)/income
attributable to JMP Group ($1,400 ) $789 ($15,910 ) $2,926
Net (loss)/income attributable to JMP Group per
share: Basic ($0.06 ) $0.04 ($0.74 ) $0.14 Diluted ($0.06 ) $0.04
($0.74 ) $0.13 Weighted average common shares outstanding:
Basic 21,568 21,071 21,579 21,105 Diluted 21,568 22,018 21,579
21,841
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180214006297/en/
Investor Relations ContactJMP Group LLCAndrew Palmer,
415-835-8978apalmer@jmpg.comorMedia Relations ContactsDukas
Linden Public Relations, Inc.Zach Leibowitz,
646-722-6528zach@dlpr.comorAlyssa Noud,
646-722-6525alyssa@dlpr.com
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