ITEM
2.
|
Management
’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following Management
’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read together with the unaudited consolidated financial statements and the related notes included elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the MD&A for the fiscal year ended December 31, 2017 contained in our Form 10-K (the “Annual Report”), as well as the consolidated financial statements and notes contained therei
n.
Cautionary Statement Regarding Forward
-
Looking Statements
This MD&A and other sections of this
Form 10-Q (the “Quarterly Report”) contain forward looking statements. We make forward-looking statements, as defined by the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and in some cases you can identify these statements by forward-looking words such as “if,” “shall,” “may,” “might,” “will likely result,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “intend,” “goal,” “objective,” “predict,” “potential” or “continue,” the negative of these terms, and other comparable terminology. These forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events that we believe to be reasonable. There are or may be important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the historical or future results, level of activity, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption “Risk Factors” in our Annual Report. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. We undertake no duty to update any of these forward-looking statements after the date of filing of this Quarterly Report to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law.
Impact of Adopting Revenue Recognition Guidance
On January 1, 2018, we adopted ASU 201-09, Revenue from Contracts with Customers (Topic 606), which provides a more robust framework for addressing revenue issues, and clarifies the implementation guidance on principal versus agent considerations. The Company adopted this standard using a modified retrospective approach and the new revenue standard was applied prospectively in the Company's financial statements. The Company reported financial information for historical comparable periods that was not revised and will continue to be reporting under the accounting standards in effect during those historical periods. The new standard does not apply to revenue from financial instruments, including loans and securities, and as a result, it did not have an impact on revenues closely associated with financial instruments, including principal transactions, interest income, and interest expenses. The new standard primarily impacts the presentation of out investment banking revenues, specifically underwriting revenues, strategic advisory revenues, and private placement fees. Certain investment banking revenues have historically been presented net of related expenses. Under the new standard, revenues and expenses related to investment banking transactions are presented gross in the Consolidated Statements of Operations.
Refer to Note 3, Recent Accounting Pronouncements, for additional information.
Overview
JMP Group LLC, together with its subsidiaries (collectively, the “Company”, “we”, or “us”), is
a diversified capital markets firm headquartered in San Francisco, California. We have a diversified business model with a focus on small and middle-market companies and provide:
|
•
|
|
investment banking
services, including corporate finance, mergers and acquisitions and other strategic advisory services, to corporate clients;
|
|
•
|
|
sales and trading and related
securities brokerage services to institutional investors;
|
|
•
|
|
equity research
coverage of four target industries;
|
|
•
|
|
asset management products and services to institutional investors, high net-worth individuals and for our own account;
and
|
|
•
|
|
management of collateralized loan obligations
and a specialty finance company.
|
Components of Revenues
We derive revenues primarily from: fees from our investment banking business, net commissions from our sales and trading business, management fees and incentive fees from our asset management business, and interest income earned on collateralized loan obligations we manage. We also generate revenues from principal transactions, interest, dividends and other income.
Investment Banking
We earn investment banking revenues from underwriting securities offerings, arranging private
capital markets transactions and providing advisory services in mergers and acquisitions and other strategic transactions.
Underwriting Revenues
We earn revenues from securities offerings in which we act as an underwriter, such as initial public offerings and follow-on equity offerings. Underwriting revenues include management fees, underwriting fees, selling concessions, and realized and unrealized net gains and losses on equity positions held in inventory for a period of time to facilitate the completion of certain underwritten
offerings. We record underwriting revenues, gross of related syndicate expenses, at the time an underwritten transaction is completed. In syndicated transactions, management estimates our share of transaction-related expenses incurred by the syndicate, and we recognize revenues gross of such expense. On final settlement by the lead manager, typically 90 days from the trade date of the transaction, we adjust these amounts to reflect the actual transaction-related expenses and our resulting underwriting fee. We receive a higher proportion of total fees in underwritten transactions in which we act as a lead manager.
Strategic Advisory Revenues
Our strategic advisory revenues primarily
consist of success fees received upon the closing of mergers and acquisitions but also include retainer fees received when we are first engaged to provide advisory services. We also earn fees for related advisory work and other services, such as fairness opinions and valuation analyses. These revenues may be earned for providing services to either the buyer or the seller involved in a transaction. We record strategic advisory revenues when the transactions or the services to be performed (or, if applicable, separate components thereof) are substantially completed, the fees are determinable and collection is reasonably assured.
Private
Capital Markets and Other
Revenues
We earn fees
for private capital markets and other services in connection with transactions that are not underwritten, such as private placements of equity securities, private investments in public equity (“PIPE”) transactions and Rule 144A offerings. We record private placement revenues on the closing date of these transactions.
Since our investment banking revenues are generally recognized at the time of completion of
a transaction or the services to be performed, these revenues typically vary between periods and may be affected considerably by the timing of the closing of significant transactions.
Brokerage Revenues
Our brokerage revenues include
trading commissions paid by customers for purchases or sales of exchange-listed and over-the-counter (“OTC”) equity securities. Commissions are recognized on a trade date basis. Brokerage revenues also include net trading gains and losses that result from market-making activities and from our commitment of capital to facilitate customer transactions. Our brokerage revenues may vary between periods, in part depending on commission rates, trading volumes and our ability to deliver equity research and other value-added services to our clients. The ability to execute trades electronically, through the Internet and through other alternative trading systems, has increased pressure on trading commissions and spreads across our industry. We expect this trend toward alternative trading systems and the related pricing pressure in the brokerage business to continue. We are, to some extent, compensated through brokerage commissions for the equity research and other value-added services we deliver to our clients. These “soft dollar” practices have been the subject of discussion among regulators, the investment banking community and our sales and trading clients. In particular, commission sharing arrangements have been adopted by some large institutional investors. In these arrangements, an institutional investor concentrates its trading with fewer “execution” brokers and pays a fixed amount for execution, with a designated amount set aside for payments to other firms for research or other brokerage services. Accordingly, trading volume directed to us by investors that enter into such arrangements may be reduced, or eliminated, but we may be compensated for our research and sales efforts through allocations of the designated amounts. Depending on the extent to which we agree to this practice and depending on our ability to enter into arrangements on terms acceptable to us, this trend would likely impair the revenues and profitability of our brokerage business by negatively affecting both volumes and trading commissions.
Asset Management Fees
We earn a
sset management fees for managing a family of investment partnerships, including hedge funds, hedge funds of funds, and private equity funds, as well as a publicly traded specialty finance company, HCC. These fees include base management fees and incentive fees. Base management fees are generally determined by the fair value of the assets under management or the aggregate capital commitment and the fee schedule for each fund or account. Incentive fees are based upon the investment performance of the funds or accounts. For most of our funds, incentive fees equate to a percentage of the excess investment return above a specified high-water mark or hurdle rate over a defined period of time. For private equity funds, incentive fees equate to a percentage of the realized gain from the disposition of each portfolio investment in which each investor participates, which we earn after returning contributions by an investor for a portfolio investment. Generally, we do not earn management fees calculated on the basis of average assets under management (“AUM”).
As of September 30, 2018
the contractual base management fees earned from each of our investment funds or companies ranged between 1% and 2% of AUM or were between 1% and 2% of aggregate committed capital. The contractual incentive fees were generally 20%, subject to high-water marks, for the hedge funds; 5% to 20%, subject to high-water marks or a performance hurdle rate, for the hedge funds of funds; 20%, subject to high-water marks, for Harvest Growth Capital LLC (“HGC”) and Harvest Growth Capital II LLC (“HGC II”); and 30% for JMP Capital I. Our asset management revenues are subject to fluctuations due to a variety of factors that are unpredictable, including the overall condition of the economy, the securities markets as a whole and our core sectors. These market and industry conditions can have a material effect on the inflows and outflows of AUM and on the performance of our asset management funds. For example, a significant portion of the performance-based or incentive fee revenues that we recognize are based on the value of securities held in the funds we manage. The value of these securities includes unrealized gains or losses that may change from one period to another.
Asset management fees for the CLOs
we manage currently consist only of senior and subordinated base management fees. We recognize base management fees for the CLOs on a monthly basis over the period during which the collateral management services are performed. The base management fees for the CLOs are calculated as a percentage of the average aggregate collateral balances for a specified period. As we consolidate the CLO’s, the management fees earned at JMP Credit
Advisors LLC (“JMPCA”) from the CLOs are eliminated on consolidation in accordance with GAAP. For the nine months ended September 30, 2017, the contractual senior and subordinated base management fees earned from CLO I and CLO II were 0.50% of the average aggregate collateral balance. For both the nine months ended September 30, 2018 and 2017, the contractual senior and subordinated base management fees earned from CLO III were 0.35% and 0.33%, respectively, of the average aggregate collateral balance. For the nine months ended September 30, 2017, the contractual senior and subordinated base management fees earned from CLO IV warehouse portfolio were 1.0% of the average collateral balance. For the nine months ended September 30, 2018 and 2017, the contractual senior and subordinated base management fees earned from CLO IV, after securitization, were 0.50% of the average aggregate collateral balance. For the three and nine months ended September 30, 2018, the contractual senior and subordinated base management fees earned from CLO V warehouse portfolio were 1.0% of the average equity contributions. For the three and months ended September 30, 2018, contractual senior and subordinated base management fees earned from CLO V, after securitization, were 0.50% of the average aggregate collateral balance.
The redemption provisions of our hedge funds require at least 60 to 90 days
’ advance notice. Redemptions are not permitted in our private equity funds or our private debt capital vehicles.
The redemption provisions do not apply to the CLOs.
The following
tables present certain information with respect to the investment funds managed by HCS, JMPAM, HCAP Advisors, and JMPCA:
(In thousands)
|
|
Assets Under Management (1) at
|
|
|
Company's Share of
Assets Under Management at
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Funds Managed by HCS, JMPAM, or HCAP Advisors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Small Cap Partners (2)
|
|
$
|
373,349
|
|
|
$
|
377,513
|
|
|
$
|
365
|
|
|
$
|
1,074
|
|
Harvest Agriculture Select (3)
|
|
|
73,297
|
|
|
|
99,133
|
|
|
|
504
|
|
|
|
9,259
|
|
Private Equity Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Growth Capital LLC
|
|
|
19,883
|
|
|
|
19,487
|
|
|
|
878
|
|
|
|
852
|
|
Harvest Growth Capital II LLC
|
|
|
169,359
|
|
|
|
149,998
|
|
|
|
3,252
|
|
|
|
3,011
|
|
Harvest Intrexon Enterprise Fund
|
|
|
57,208
|
|
|
|
70,295
|
|
|
|
353
|
|
|
|
430
|
|
JMP Realty Partners I
|
|
|
38,782
|
|
|
|
33,282
|
|
|
|
2,832
|
|
|
|
2,832
|
|
Other
|
|
|
9,550
|
|
|
|
10,111
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Funds of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Masters Fund (4)
|
|
|
2,427
|
|
|
|
3,048
|
|
|
|
2
|
|
|
|
4
|
|
Capital or Private Debt Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Capital I
|
|
|
23,529
|
|
|
|
23,529
|
|
|
|
2,329
|
|
|
|
2,329
|
|
Harvest Capital Credit Corporation
|
|
|
132,493
|
|
|
|
128,408
|
|
|
|
N/A
|
|
|
|
N/A
|
|
HCS, JMPAM, and HCAP Advisors Totals
|
|
$
|
899,877
|
|
|
$
|
914,804
|
|
|
$
|
10,515
|
|
|
$
|
19,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs Managed by JMPCA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO III (5)
|
|
|
360,098
|
|
|
|
360,680
|
|
|
|
N/A
|
|
|
|
N/A
|
|
CLO IV (5)
|
|
|
450,281
|
|
|
|
450,985
|
|
|
|
N/A
|
|
|
|
N/A
|
|
CLO V and CLO V warehouse (5)
|
|
|
400,170
|
|
|
|
82,691
|
|
|
|
N/A
|
|
|
|
N/A
|
|
JMPCA Totals
|
|
$
|
1,210,549
|
|
|
$
|
894,356
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Group LLC Totals
|
|
$
|
2,110,426
|
|
|
$
|
1,809,160
|
|
|
$
|
10,515
|
|
|
$
|
19,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For hedge funds, funds of funds,
HGC, HGC II, Harvest Intrexon Enterprise Fund ("HIEF"), and Other, AUM represent the net assets of such funds. For JMP Realty Partners I and JMP Capital I, assets under management represent the commitment amount. For JMP Realty Partners I the commitment amount is subject to the management fee calculation. For CLOs, AUM represent the sum of the aggregate collateral balance and restricted cash to be reinvested in collateral, upon which management fees are earned.
|
(2)
|
The Company has agreed to a non-binding letter of intent to sell the general partnership interest in the Harvest Small Cap Partners fund entities to a newly formed entity owned by the portfolio manager of the Harvest Small Cap Partners funds. Completion of the sale is subject to certain terms and conditions and the parties are working toward the execution of the definitive agreements by year-end, assuming all conditions in the letter of intent are satisfied by the required time lines. The expected close date will be December 31, 2018.
|
(3)
|
Harvest Agriculture Select (“HAS”)
includes managed accounts in which the Company has neither equity investment nor control. These are included as they follow the respective funds’ strategy and earn fees.
|
(4)
|
JMP Masters began the process of liquidation on December 31, 2015.
|
(
5)
|
CLO III, CLO IV, CLO V (effective July 26, 2018), and CLO V warehouse (through July 26, 2018) were consolidated in the Company’s Statements of Financial Condition for the period ended September 30, 2018 and for the year ended December 31, 2017.
|
(In thousands)
|
|
Three Months Ended September 30, 2018
|
|
|
Three Months Ended September 30, 2017
|
|
|
|
Company's
Share of
Change in
Fair Value
|
|
|
Management
Fee
|
|
|
Incentive
Fee
|
|
|
Company's
Share of
Change in
Fair Value
|
|
|
Management
Fee
|
|
|
Incentive
Fee
|
|
Hedge Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Small Cap Partners (1)
|
|
$
|
19
|
|
|
|
1,600
|
|
|
|
16
|
|
|
$
|
134
|
|
|
|
1,850
|
|
|
|
19
|
|
Harvest Agriculture Select (2)
|
|
|
7
|
|
|
|
206
|
|
|
|
-
|
|
|
|
256
|
|
|
|
246
|
|
|
|
54
|
|
Private Equity Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Growth Capital LLC
|
|
|
61
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(68
|
)
|
|
|
-
|
|
|
|
-
|
|
Harvest Growth Capital II LLC
|
|
|
32
|
|
|
|
146
|
|
|
|
-
|
|
|
|
(63
|
)
|
|
|
130
|
|
|
|
-
|
|
Harvest Intrexon Enterprise Fund
|
|
|
(32
|
)
|
|
|
176
|
|
|
|
-
|
|
|
|
2
|
|
|
|
613
|
|
|
|
-
|
|
JMP Realty Partners I
|
|
|
(30
|
)
|
|
|
89
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
148
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
Funds of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Masters Fund (3)
|
|
|
1
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
Capital or private debt capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Capital
|
|
|
N/A
|
|
|
|
1
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
-
|
|
|
|
-
|
|
Harvest Capital Credit Corporation (4)
|
|
|
N/A
|
|
|
|
964
|
|
|
|
487
|
|
|
|
N/A
|
|
|
|
943
|
|
|
|
-
|
|
CLOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO III (5)
|
|
|
N/A
|
|
|
|
323
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
303
|
|
|
|
-
|
|
CLO IV (5)
|
|
|
N/A
|
|
|
|
575
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
576
|
|
|
|
-
|
|
CLO V and CLO V warehouse (5)
|
|
|
N/A
|
|
|
|
413
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
9
|
|
|
|
-
|
|
Totals
|
|
$
|
58
|
|
|
$
|
4,504
|
|
|
$
|
503
|
|
|
$
|
255
|
|
|
$
|
4,829
|
|
|
$
|
73
|
|
(1)
|
The Company has agreed to a non-binding letter of intent to sell the general partnership interest in the Harvest Small Cap Partners fund entities to a newly formed entity owned by the portfolio manager of the Harvest Small Cap Partners funds. Completion of the sale is subject to certain terms and conditions and the parties are working toward the execution of the definitive agreements by year-end, assuming all conditions in the letter of intent are satisfied by the required time lines. The expected close date will be December 31, 2018.
|
(2)
|
HAS include
s managed accounts in which the Company has neither equity investment nor control. These are included with the funds, as they follow the respective strategies and earn fees.
|
(3)
|
JMP Masters began the process of liquidation on December 31, 2015.
|
(
4)
|
Management fees earned includes administrative services revenue.
|
(5)
|
Management and Incentive Fees earned from CLOs
are consolidated and then eliminated in consolidation in the Company’s Statements of Operations.
|
(In thousands)
|
|
Nine Months Ended September 30, 2018
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
Company's
Share of
Change in
Fair Value
|
|
|
Management
Fee
|
|
|
Incentive
Fee
|
|
|
Company's
Share of
Change in
Fair Value
|
|
|
Management
Fee
|
|
|
Incentive
Fee
|
|
Hedge Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Small Cap Partners (1)
|
|
$
|
32
|
|
|
|
4,717
|
|
|
|
5,318
|
|
|
$
|
(82
|
)
|
|
|
5,853
|
|
|
|
1,651
|
|
Harvest Agriculture Select (2)
|
|
|
(353
|
)
|
|
|
662
|
|
|
|
-
|
|
|
|
580
|
|
|
|
705
|
|
|
|
65
|
|
Private Equity Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harvest Growth Capital LLC
|
|
|
170
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
Harvest Growth Capital II LLC
|
|
|
452
|
|
|
|
460
|
|
|
|
-
|
|
|
|
608
|
|
|
|
426
|
|
|
|
-
|
|
Harvest Intrexon Enterprise Fund
|
|
|
(98
|
)
|
|
|
527
|
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
1,839
|
|
|
|
-
|
|
JMP Realty Partners I
|
|
|
29
|
|
|
|
268
|
|
|
|
-
|
|
|
|
114
|
|
|
|
281
|
|
|
|
17
|
|
Other
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
|
|
-
|
|
Funds of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Masters Fund (3)
|
|
|
1
|
|
|
|
20
|
|
|
|
-
|
|
|
|
4
|
|
|
|
25
|
|
|
|
-
|
|
Capital or private debt capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JMP Capital I
|
|
|
N/A
|
|
|
|
12
|
|
|
|
96
|
|
|
|
N/A
|
|
|
|
-
|
|
|
|
-
|
|
Harvest Capital Credit Corporation (4)
|
|
|
N/A
|
|
|
|
2,945
|
|
|
|
487
|
|
|
|
N/A
|
|
|
|
2,923
|
|
|
|
260
|
|
CLOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO I (5)(6)
|
|
|
N/A
|
|
|
|
-
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
179
|
|
|
|
42
|
|
CLO II (5)(6)
|
|
|
N/A
|
|
|
|
-
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
734
|
|
|
|
-
|
|
CLO III (5)
|
|
|
N/A
|
|
|
|
913
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
898
|
|
|
|
-
|
|
CLO IV (5)
|
|
|
N/A
|
|
|
|
1,709
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
690
|
|
|
|
-
|
|
CLO V and CLO V warehouse (5)
|
|
|
N/A
|
|
|
|
617
|
|
|
|
-
|
|
|
|
|
|
|
|
9
|
|
|
|
-
|
|
Assets Referenced in TRS (7)
|
|
|
N/A
|
|
|
|
-
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
88
|
|
|
|
-
|
|
Totals
|
|
$
|
233
|
|
|
$
|
12,864
|
|
|
$
|
5,901
|
|
|
$
|
1,207
|
|
|
$
|
14,675
|
|
|
$
|
2,035
|
|
(1)
|
The Company has agreed to a non-binding letter of intent to sell the general partnership interest in the Harvest Small Cap Partners fund entities to a newly formed entity owned by the portfolio manager of the Harvest Small Cap Partners funds. Completion of the sale is subject to certain terms and conditions and the parties are working toward the execution of the definitive agreements by year-end, assuming all conditions in the letter of intent are satisfied by the required time lines. The expected close date will be December 31, 2018.
|
(2)
|
HAS include
s managed accounts in which the Company has neither equity investment nor control. These are included with the funds, as they follow the respective strategies and earn fees.
|
(3)
|
JMP Masters began the process of liquidation on December 31, 2015.
|
(4)
|
Management fees earned includes administrative services revenue.
|
(
5)
|
Management and incentive fees earned from CLOs
are consolidated and then eliminated in consolidation in the Company’s Statements of Operations.
|
(6)
|
CLO I and CLO II were liquidated on February 21, 2017 and June 15, 2017, respectively. Most of the CLO II assets remaining at liquidation were sold to CLO IV.
|
(7)
|
Management and incentive fees earned from
Assets referenced in TRS are consolidated and then eliminated in consolidation in the Company’s Statements of Operations. All of the assets referenced in TRS were sold to CLO IV in the second quarter of 2017, and TRS completed its liquidation in the third quarter of 2017
|
Principal Transactions
Principal transaction revenues include
net realized and unrealized gains and losses resulting from our principal investments in equity and other securities for our own account as well as equity-linked warrants received from certain investment banking clients and limited partner investments in private funds managed by third parties. Principal transaction revenues also include earnings, or losses, attributable to interests in investment partnerships managed by our asset management subsidiaries, HCS and JMPAM, which are accounted for using the equity method of accounting. In addition, our principal transaction revenues include unrealized gains or losses on an investment in an entity that acquires buildings and land for the purpose of holding, managing and selling the properties and also include unrealized gains or losses on the investments in other private companies.
Gain (Loss) on
S
ale
and
P
ayoff of
L
oans
Gain (loss) on sale
and payoff of loans consists of gains and losses from the sale and payoff of loans collateralizing asset-backed securities. Gains are recorded when the proceeds exceed the carrying value of the loan. Gain on sale, payoff and mark-to-market of loans also consists of the lower of cost or market adjustments arising from loans held for sale. Losses are recorded for a loan held for sale when the carrying value exceeds fair value.
Net Dividend Income
Net dividend income
includes dividends from our investments offset by dividend expense resulting from short positions in our principal investment portfolio.
Other Income
Other income includes
revenues from equity method investments, revenues from fee-sharing arrangements with our funds, and fees earned to raise capital for third-party investment partnerships.
Interest Income
Interest income primarily consists of interest income earned on loans collateralizing asset
-backed securities ("ABS") issued and loans held for investment. Interest income on loans is comprised of the stated coupon as a percentage of the face amount receivable as well as accretion of purchase discounts and deferred fees. Interest income is recorded on an accrual basis, in accordance with the terms of the respective loans, unless such loans are placed on non-accrual status.
Interest Expense
Interest expense primarily consists
of interest expense related to ABS issued, Senior Notes, notes payable, and any warehouse credit facilities, as well as the amortization of bond issuance costs. Interest expense on ABS issued is the stated coupon payable as a percentage of the principal amount in addition to amortization of the liquidity discount that was recorded at the acquisition date. Interest expense is recorded on an accrual basis, in accordance with the terms of the respective debt instrument.
Loss on Repurchase, Reissuance, or Early Retirement of Debt
Loss on repurchase, reissuance, or early retirement of debt primarily consists of losses incurred in the write-off of debt issuance costs related to Senior Notes or ABS issued that have been repurchased or retired sooner than the life of the instrument.
Provision for Loan Losses
Provision for loan losses includes the provision for losses recognized on our loan notes and non-revolving credit agreements at JMP Capital LLC and JMP Investment Holdings (collectively loans held for investment) and on loans collateralizing ABS in order to record the loans held for investment and ABS at their estimated net realizable value. We maintain an allowance for loan losses that is intended to estimate loan losses inherent in our loan p
ortfolios. A provision for loan losses is charged to expense to establish the allowance for loan losses. The allowance for loan losses is maintained at a level, in the opinion of management, sufficient to offset estimated losses inherent in the loan portfolio as of the date of the financial statements. The appropriateness of the allowance and the allowance components are reviewed quarterly. Our estimate of each allowance component is based on observable information and on market and third-party data that we believe are reflective of the underlying loan losses being estimated. We employ internally developed and third-party estimation tools for measuring credit risk (loan ratings, probability of default, and exposure at default).
A specific reserve is provided for loans that are considered impaired. A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan
’s effective interest rate, the loan’s observable market price, or the fair value of the collateral securing the loan, if the loan is collateral-dependent, depending on the circumstances and our collection strategy. For those loans held by CLO I at the date of acquisition by JMP Credit, and deemed impaired at that date or a subsequent date, allowance for loan losses is calculated considering two additional factors. For loans deemed impaired at the date of acquisition, if there is a further decline in expected future cash flows, this reduction is recognized as a specific reserve in accordance with the guidance above. For those loans deemed impaired subsequent to the acquisition date, or for loans held at CLO III, CLO IV, or CLO V, if the net realizable value is lower than the current carrying value, the carrying value is reduced, and the difference is booked as a provision for loan losses. If the total discount from unpaid principal balance to carrying value is larger than the expected loss at the date of assessment, no provision for loan losses is recognized.
Loans which are deemed to be uncollectible are charged off, and the charged-off amount is deducted from the allowance.
Components of Expenses
We classify our expens
es as compensation and benefits; administration; brokerage, clearing and exchange fees; travel and business development; communications and technology; managed deal expenses, occupancy; professional fees, depreciation, and other. A significant portion of our expense base is variable, including compensation and benefits; brokerage, clearing and exchange fees; travel and business development; communication and technology expenses, and managed deal expenses.
Compensation and Benefits
Compensation and benefits is the largest component of our expenses and includes employees
’ base pay, performance bonuses, sales commissions, related payroll taxes, and medical and benefits expenses, as well as expenses for contractors, temporary employees, and equity-based compensation. Our employees receive a substantial portion of their compensation in the form of an individual, performance-based bonus. As is the widespread practice in our industry, we pay bonuses, for the most part, on an annual basis, and for senior professionals these bonuses typically make up a large portion of their total compensation. A portion of the performance-based bonuses paid to certain senior professionals is paid in the form of deferred compensation. Bonus payments may have a greater impact on our cash position and liquidity in the periods in which they are paid than would otherwise be reflected in our Consolidated Statements of Operations. We accrue for the estimated amount of these bonus payments ratably over the applicable service period.
Compensation is accrued with specific ratios of total compensation and benefits to total revenues applied to specific revenue categories, with adjustments made if, in management
’s opinion, such adjustments are necessary and appropriate to maintain competitive compensation levels.
Administration
Administration expense primarily includes the cost of hosted conferences, non-capitalized systems and software expenditures, insurance, business tax (non-income), office supplies, recruiting
, and regulatory fees.
Brokerage, Clearing, and Exchange Fees
Brokerage, clearing, and exchange fees include the cost of floor and electronic brokerage and execution, securities clearance, and exchange fees. Changes in brokerage, clearing, and exchange fees fluctuate largely in line with the volume of our sales and trading activity.
Travel and Business Development
Travel and business development expense primarily consists of costs incurred traveling to client locations for the purposes of executing transactions or meeting potential new clients, travel for administrative functions, and other costs incurred in developing new business. Travel costs related to existing clients for mergers and acquisitions and underwriting deals are sometimes reimbursed by clients. Under the new revenue standard ASC 606, reimbursed costs are presented as revenue on the Consolidated Statements of Operations.
Managed Deal Expenses
Managed deal expenses primarily relate to costs incurred and/or allocated in the execution of investment banking transactions, including reimbursable costs.
Under the new revenue standard ASC 606, reimbursed costs are presented as revenue on the Consolidated Statements of Operations.
Communications and Technology
Communications and technology expense primarily relates to
the cost of communication and connectivity, information processing and subscriptions to certain market data feeds and services.
Occupancy Expenses
Occupancy costs primarily include payments made under operating leases that are recognized on a straight-line basis over the period of the lease.
Professional Fees
Professional fees primarily relate to legal and accounting professional services.
Depreciation
Depreciation expenses include the straight-line amortization of purchases of certain furniture and fixtures, computer and office equipment, certain software costs, and leasehold improvements to allocate their depreciation amounts over their estimated useful life.
Other Expenses
Other operating expenses primarily includes bad debt expense and CLO administration expense at JMP Investment Holdings
.
Income Taxes
JMP Group LLC is a publicly traded partnership and, as such, is taxed as a partnership, and not as a corporation, for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income
.”
The Company
’s effective tax rate is directly impacted by the proportion of income subject to tax compared to income not subject to tax. JMP Group Inc., a wholly-owned subsidiary, is subject to U.S. federal and state income taxes. The remainder of the Company’s income is generally not subject to corporate-level taxation.
The Company recognizes deferred tax assets and liabilities in accordance with ASC 740,
Income Taxes
,
which are determined based upon the temporary differences between the financial reporting and tax basis of the Company’s assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce the deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will not be realized.
The Company records uncertain tax positions using a two-step process: (i) the Company determines whether it is more likely than not that each tax position will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the
more-likely-than not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than fifty percent likely to be realized upon ultimate settlement with the related tax authority
The Company
’s policy for recording interest and penalties associated with the tax audits or unrecognized tax benefits, if any, is to record such items as a component of income tax.
Non
-
controlling Interest
Non-controlling interest for the
nine months ended September 30, 2018 includes the interest of third parties in CLO III, HCS Strategic Investments LLC, and HCAP Advisors, partially-owned subsidiaries consolidated in our financial statements.
Non-controlling interest for the nine
months ended September 30, 2017 included the interest of third parties in CLO I, CLO II, CLO III, and HCAP Advisors
The Company currently manages several asset management funds, which are structured as limited partnerships, and is the general partner of each. The Company assesses whether the partnerships meet the definition of variable interest entities (“VIEs”) in accordance with ASC 810-10-15-14
and whether the Company qualifies as the primary beneficiary. Funds determined not to meet the definition of a VIE are considered voting interest entities, for which the rights of the limited partners are evaluated to determine if consolidation is necessary. Such guidance provides that the presumption that the general partner controls the limited partnership may be overcome if the limited partners have substantive kick-out rights.
The Company owned approximately 94% of the
subordinated notes of the issuer
of CLO I. CLO I initiated liquidation proceedings in the fourth quarter of 2016 and completed its liquidation in the first quarter of 2017.
The Company was identified as the primary beneficiary, based on the ability to direct activities of CLO I through its subsidiary manager, JMP Credit Advisors, and its equity ownership.
The Company, through a wholly-owned subsidiary,
managed CLO II from issuance through its liquidation in the second quarter of 2017. From issuance through December 31, 2013, the Company owned $17.3 million, or 72.8%, of the subordinated notes of the issuer. In the first quarter of 2014, the Company repurchased $6.0 million of subordinated notes, increasing its ownership to 98.0%. In March 2017, the Company repurchased $7.0 million of Class F notes. CLO II began and completed its liquidation in the second quarter of 2017. The Company was identified as the primary beneficiary, based on the ability to direct activities of CLO II through its subsidiary manager, JMP Credit Advisors, and its equity ownership.
The Company, through a wholly-owned subsidiary, has managed CLO III since issuance. From issuance through September 27, 2016, the Company owned $5.2 million or 13.5% of the subordinated notes of the issuer. On September 27, 2016, the Company repurchased $12.8 million face value of the subordinated notes, increasing its ownership to 46.7%.
The Company was identified as the primary beneficiary, based on the ability to direct activities of CLO III through its subsidiary manager, JMPCA, and its equity ownership. In February 2018, the Company closed a refinancing of the asset-backed securities issued by CLO III, which lowered the weighted average costs of funds by 55 basis points and extended the reinvestment period for two years. In connection with the refinancing, the Company recorded losses on early retirement of debt related to unamortized debt issuance costs of $2.6 million for the quarter ended March 31, 2018.
HCAP Advisors was formed on December 18, 2012. HCAP Advisors appointed JMP Group LLC as its Manager effective May 1, 2013 and began offering investment advisory services. The Company owned a 51.0% equity interest in the entity until April 27, 2018 when the Company purchased an additional 18.4% of HCAP equity from a non-controlling interest holder. As of April 27, 2018, the Company owns a 69.4% of equity interest in the entity.
The Company was identified as the primary beneficiary, based on the ability to direct activities of HCAP Advisors as the Manager and its equity ownership.
Results of Operations
The following table sets forth our results of operations for the three
months and nine months ended September 30, 2018 and 2017, and is not necessarily indicative of the results to be expected for any future period.
(In thousands)
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
Three Month Change
from 2017 to 2018
|
|
|
Nine Month Change
from 2018 to 2017
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
21,095
|
|
|
$
|
22,085
|
|
|
$
|
70,319
|
|
|
$
|
54,813
|
|
|
$
|
(990
|
)
|
|
|
-4.5
|
%
|
|
$
|
15,506
|
|
|
|
28.3
|
%
|
Brokerage
|
|
|
4,676
|
|
|
|
4,763
|
|
|
|
14,787
|
|
|
|
15,127
|
|
|
|
(87
|
)
|
|
|
-1.8
|
%
|
|
|
(340
|
)
|
|
|
-2.2
|
%
|
Asset management fees
|
|
|
3,702
|
|
|
|
4,014
|
|
|
|
15,505
|
|
|
|
14,078
|
|
|
|
(312
|
)
|
|
|
-7.8
|
%
|
|
|
1,427
|
|
|
|
10.1
|
%
|
Principal transactions
|
|
|
469
|
|
|
|
(1,392
|
)
|
|
|
(1,467
|
)
|
|
|
(3,608
|
)
|
|
|
1,861
|
|
|
|
133.7
|
%
|
|
|
2,141
|
|
|
|
59.3
|
%
|
Gain (loss) on sale, payoff and mark-to-market of loans
|
|
|
(556
|
)
|
|
|
278
|
|
|
|
(888
|
)
|
|
|
1,208
|
|
|
|
(834
|
)
|
|
|
-300.0
|
%
|
|
|
(2,096
|
)
|
|
|
-173.5
|
%
|
Net dividend income
|
|
|
320
|
|
|
|
278
|
|
|
|
935
|
|
|
|
817
|
|
|
|
42
|
|
|
|
15.1
|
%
|
|
|
118
|
|
|
|
14.4
|
%
|
Other income
|
|
|
306
|
|
|
|
282
|
|
|
|
666
|
|
|
|
921
|
|
|
|
24
|
|
|
|
8.5
|
%
|
|
|
(255
|
)
|
|
|
-27.7
|
%
|
Non-interest revenues
|
|
|
30,012
|
|
|
|
30,308
|
|
|
|
99,857
|
|
|
|
83,356
|
|
|
|
(296
|
)
|
|
|
-1.0
|
%
|
|
|
16,501
|
|
|
|
19.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
18,652
|
|
|
|
10,900
|
|
|
|
47,031
|
|
|
|
29,663
|
|
|
|
7,752
|
|
|
|
71.1
|
%
|
|
|
17,368
|
|
|
|
58.6
|
%
|
Interest expense
|
|
|
(13,789
|
)
|
|
|
(8,811
|
)
|
|
|
(35,125
|
)
|
|
|
(24,649
|
)
|
|
|
(4,978
|
)
|
|
|
-56.5
|
%
|
|
|
(10,476
|
)
|
|
|
-42.5
|
%
|
Net interest income
|
|
|
4,863
|
|
|
|
2,089
|
|
|
|
11,906
|
|
|
|
5,014
|
|
|
|
2,774
|
|
|
|
132.8
|
%
|
|
|
6,892
|
|
|
|
137.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on repurchase, reissuance, or early retirement of debt
|
|
|
(170
|
)
|
|
|
-
|
|
|
|
(2,838
|
)
|
|
|
(5,332
|
)
|
|
|
(170
|
)
|
|
|
0.0
|
%
|
|
|
2,494
|
|
|
|
46.8
|
%
|
Provision for loan losses
|
|
|
(1,454
|
)
|
|
|
(368
|
)
|
|
|
(4,199
|
)
|
|
|
(3,488
|
)
|
|
|
(1,086
|
)
|
|
|
-295.1
|
%
|
|
|
(711
|
)
|
|
|
-20.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues after provision for loan losses
|
|
|
33,251
|
|
|
|
32,029
|
|
|
|
104,726
|
|
|
|
79,550
|
|
|
|
1,222
|
|
|
|
3.8
|
%
|
|
|
25,176
|
|
|
|
31.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
22,671
|
|
|
|
24,563
|
|
|
|
76,070
|
|
|
|
69,013
|
|
|
|
(1,892
|
)
|
|
|
-7.7
|
%
|
|
|
7,057
|
|
|
|
10.2
|
%
|
Administration
|
|
|
2,302
|
|
|
|
1,459
|
|
|
|
7,246
|
|
|
|
5,999
|
|
|
|
843
|
|
|
|
57.8
|
%
|
|
|
1,247
|
|
|
|
20.8
|
%
|
Brokerage, clearing, and exchange fees
|
|
|
808
|
|
|
|
740
|
|
|
|
2,373
|
|
|
|
2,288
|
|
|
|
68
|
|
|
|
9.2
|
%
|
|
|
85
|
|
|
|
3.7
|
%
|
Travel and business development
|
|
|
1,080
|
|
|
|
709
|
|
|
|
3,236
|
|
|
|
2,735
|
|
|
|
371
|
|
|
|
52.3
|
%
|
|
|
501
|
|
|
|
18.3
|
%
|
Managed deal expenses
|
|
|
614
|
|
|
|
-
|
|
|
|
4,528
|
|
|
|
-
|
|
|
|
614
|
|
|
|
0.0
|
%
|
|
|
4,528
|
|
|
|
0.0
|
%
|
Communication and technology
|
|
|
1,040
|
|
|
|
1,046
|
|
|
|
3,149
|
|
|
|
3,150
|
|
|
|
(6
|
)
|
|
|
-0.6
|
%
|
|
|
(1
|
)
|
|
|
0.0
|
%
|
Occupancy
|
|
|
1,172
|
|
|
|
1,117
|
|
|
|
3,432
|
|
|
|
3,339
|
|
|
|
55
|
|
|
|
4.9
|
%
|
|
|
93
|
|
|
|
2.8
|
%
|
Professional fees
|
|
|
1,272
|
|
|
|
1,094
|
|
|
|
4,315
|
|
|
|
3,109
|
|
|
|
178
|
|
|
|
16.3
|
%
|
|
|
1,206
|
|
|
|
38.8
|
%
|
Depreciation
|
|
|
285
|
|
|
|
277
|
|
|
|
836
|
|
|
|
891
|
|
|
|
8
|
|
|
|
2.9
|
%
|
|
|
(55
|
)
|
|
|
-6.2
|
%
|
Other
|
|
|
369
|
|
|
|
366
|
|
|
|
1,532
|
|
|
|
1,993
|
|
|
|
3
|
|
|
|
0.8
|
%
|
|
|
(461
|
)
|
|
|
-23.1
|
%
|
Total non-interest expenses
|
|
|
31,613
|
|
|
|
31,371
|
|
|
|
106,717
|
|
|
|
92,517
|
|
|
|
242
|
|
|
|
0.8
|
%
|
|
|
14,200
|
|
|
|
15.3
|
%
|
Income (loss) before income tax expense
|
|
|
1,638
|
|
|
|
658
|
|
|
|
(1,991
|
)
|
|
|
(12,967
|
)
|
|
|
980
|
|
|
|
148.9
|
%
|
|
|
10,976
|
|
|
|
84.6
|
%
|
Income tax expense (benefit)
|
|
|
527
|
|
|
|
1,113
|
|
|
|
(146
|
)
|
|
|
(169
|
)
|
|
|
(586
|
)
|
|
|
-52.7
|
%
|
|
|
23
|
|
|
|
13.6
|
%
|
Net income (loss)
|
|
|
1,111
|
|
|
|
(455
|
)
|
|
|
(1,845
|
)
|
|
|
(12,798
|
)
|
|
|
1,566
|
|
|
|
344.2
|
%
|
|
|
10,953
|
|
|
|
85.6
|
%
|
Less: Net income attributable to non-controlling interest
|
|
|
823
|
|
|
|
780
|
|
|
|
138
|
|
|
|
1,712
|
|
|
|
43
|
|
|
|
5.5
|
%
|
|
|
(1,574
|
)
|
|
|
-91.9
|
%
|
Net income (loss) attributable to JMP Group LLC
|
|
$
|
288
|
|
|
$
|
(1,235
|
)
|
|
$
|
(1,983
|
)
|
|
$
|
(14,510
|
)
|
|
$
|
1,523
|
|
|
|
123.3
|
%
|
|
$
|
12,527
|
|
|
|
86.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017
Overview
Total net revenues after provision for loan losses increased $1.3 million, or
3.8%
, from $32.0 million for the quarter ended September 30, 2017 to $33.3 million for the quarter ended September 30, 2018, primarily resulting from a $1.0 million decrease in investment banking revenue, a $0.8 million decrease in gains on sale, payoff, and mark-to-market of loans, and a $1.1 million increase in the provision for loan losses, partially offset by a $1.9 million increase in revenues from principal transactions and a $2.8 million increase in net interest income.
Non-interest revenues decreased $0.3 million, or 1.0%, from $30.3 million for the quarter ended September 30, 2017 to $30.0 million in the same period in 2018. This decrease was primarily driven by a $1.0 million decrease in investment banking revenues, a $0.3 million decrease in asset management revenues, and a $0.8 million decrease in gains on sale, payoff, and mark-to-market of loans, partially offset by a $1.9 million increase in revenues from principal transactions. Of the total of investment banking revenues earned, $0.9 million of revenue is related to a gross up of expenses as a result of the Company's adoption of ASC 606. See Note 3 of the Consolidated Financial Statements for additional details on the new revenue standard and accounts affected by adoption.
Net interest income increased $2.8 million, or
132.8%
, from $2.1 million for the quarter ended September 30, 2017 to $4.9 million for the quarter ended September 30, 2018.
Loss on repurchase, reissuance, or early retirement of debt increased $0.2 million, from zero for the quarter ended September 30, 2017 to a loss of $0.2 million for the quarter ended September 30, 2018.
Provision for loan losses increased
$1.1 million, or 295.1% from $0.4 million for the quarter ended September 30, 2017 to $1.5 million for the quarter ended September 30, 2018.
Total non-interest expense
s increased $0.2 million, or
0.8%
, from $31.4 million for the quarter ended September 30, 2017 to $31.6 million for the quarter ended September 30, 2018, primarily due to a $0.8 million increase in administration expenses, a $0.4 million increase in travel and business development, and a $0.6 million increase in managed deal expenses, partially offset by a $1.9 million decrease in compensation and benefits.
Of the $0.2 million increase in expenses, $0.9
million of the increase is related to a gross-up of expenses as a result of the Company's adoption of ASC 606. See Note 3 of the Consolidated Financial Statements for additional details on the new revenue standard and accounts affected by adoption.
Net income attributable to non-controlling interest was $0.8 million for both of the quarters ended September 30, 2018 and 2017.
Net income attributable to JMP Group LLC increased $1.5
million, or
123.3%
from a net loss $1.2 million for the quarter ended September 30, 2017 to net income of $0.3
million for the quarter ended September 30, 2018. This was primarily attributed to an increase in net income before tax expense of $1.0 million and a $0.6 million decrease in the income tax expense.
Nine
Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Overview
Total net revenues after provision for loan losses increased $25.1 million, or
31.6%
, from $79.6 million for the nine months ended September 30, 2017 to $104.7 million for the nine months ended September 30, 2018, primarily resulting from a $15.5 million increase in investment banking revenues, a $1.4 million increase in asset management revenues, a $2.1 million increase in principal transaction revenue, a $6.9 million increase in net interest income, and a $2.5 million decrease in loss on repurchase/early retirement of debt, partially offset by a $2.1 million decrease in the gain on sale, payoff, and mark-to-market of loans and a $0.7 million increase in the provision for loan losses.
Non-interest revenues increased $16.5 million, or
19.8%
, from $83.4 million for the nine months ended September 30, 2017 to $99.9 million in the same period in 2018. This increase was driven by a $15.5 million increase in investment banking revenues, and a $1.4 million increase in asset management revenues, and a $2.1 million increase in principal transaction revenue, partially offset by a $2.1 million decrease in the gain on sale, payoff, and mark-to-market of loans. Of the $15.5 million increase in investment banking revenues, $5.6 million of the increase is related to a gross up of expenses as a result of the Company's adoption of ASC 606. See Note 3 of the Consolidated Financial Statements for additional details on the new revenue standard and accounts affected by adoption.
Net interest income increased $6.9 million, or
137.5%
, from $5.0 million for the nine months ended September 30, 2017 to $11.9 million for the nine months ended September 30, 2018.
Loss on repurchase, reissuance, or early retirement of debt decreased $2.5 million, or
46.8%
, from a loss of $5.3 million for the nine months ended September 30, 2017 to a loss of $2.8 million for the nine months ended September 30, 2018.
Provision for loan losses increased
$0.7 million from $3.5 million for the nine months ended September 30, 2017 to $4.2 million for the nine months ended September 30, 2018.
Total non-interest expense
s increased $14.2 million, or
15.3%
, from $92.5 million for the nine months ended September 30, 2017 to $106.7 million for the nine months ended September 30, 2018, primarily due to a $7.1 million increase in compensation and benefits, a $1.2 million increase in administration expenses, a $4.5 million increase in managed deal expenses, and a $1.2 million increase in professional fees, partially offset by a $0.5 million decrease in other expenses.
Of the $14.2 million increase in expenses, $5.6 million of the increase is related to a gross-up of expenses as a result of the Company's adoption of ASC 606. See Note 3 of the Consolidated Financial Statements for additional details on the new revenue standard and accounts affected by adoption.
Net income attributable to non-controlling interest decreased $1.6 million, or 91.9% from net income of $1.7 million for the nine months ended September 30, 2017 to a net income of $0.1 million for the nine months ended September 30, 2018.
Net loss attributable to JMP Group LLC decreased $12.5
million, or
86.3%
, from $14.5 million for the nine months ended September 30, 2017 to $2.0 million for the nine months ended September 30, 2018. This was primarily attributed to a decrease in net loss before tax expense of $11.0 million and a decrease in net income attributable to non-controlling interest of $1.6 million.
Operating Net Income (Non-GAAP Financial Measure)
Management uses Operating Net Income as a key, non-GAAP metric when evaluating the performance of JMP Group
LLC’s core business strategy and ongoing operations, as management believes that this metric appropriately illustrates the operating results of JMP Group LLC’s core operations and business activities. Operating Net Income is derived from our segment reported results and is the measure of segment profitability on an after-tax basis used by management to evaluate our performance. This non-GAAP measure is presented to enhance investors’ overall understanding of the Company’s current financial performance. Additionally, management believes that Operating Net Income is a useful measure because it allows for a better evaluation of the performance of JMP Group LLC’s ongoing business and facilitates a meaningful comparison of the Company’s results in a given period to those in prior and future periods.
However, Operating Net Income 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, unless otherwise indicated, the adjustments concern gains, losses or expenses that JMP Group
LLC generally expects to continue to recognize, and the adjustment of these items should not always be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring. Therefore, management believes that both JMP Group LLC’s GAAP measures of its financial performance and the respective non-GAAP measures should be considered together. Operating Net Income may not be comparable to a similarly titled measure presented by other companies.
Operating Net Income is a non-GAAP financial measure that adjusts the Company
’s GAAP net income as follows:
|
(i)
|
reverses non-cash share-based compensation expense recognized under GAAP related to equity awards granted in prior periods, as management generally evaluates performance by considering the full expense of equity awards in the period in which they are granted, even if the expense of such compensation will be recognized in future periods under GAAP;
|
|
(ii)
|
recognizes 100% of the cost of deferred compensation in the period for which such compensation was awarded, instead of recognizing such cost over the vesting period as required under GAAP, in order to match compensation expense with the actual period upon which the compensation was based;
|
|
(iii)
|
reverses amortization expense related to an intangible asset resulting from the repurchase of a portion of the equity of CLO III;
|
|
(iv)
|
unrealized gains or losses on commercial real estate investments, adjusted for non-cash expenditures, including depreciation and amortization;
|
|
(v)
|
reverses net unrealized gains and losses on strategic equity investments and certain warrant positions;
|
|
(vi)
|
excludes general loan loss provisions related to the CLOs;
|
|
(vii)
|
reverses the one-time transaction costs related to the refinancing of the debt;
|
|
(viii)
|
one-time expenses associated with the redemption of debt underlying the CLOs, the redemption of other debt, and the resulting acceleration of the amortization of remaining capitalized issuance costs for each; and
|
|
(ix)
|
assumes a combined federal, state and local income tax rate of 26% for the three and nine months ended September 30, 2018, and 38% for the three and nine months September 30, 2017, at the Company’s taxable direct subsidiary, adjusted for a cap on allowable interest expense deduction due to recent tax reform, while applying a tax rate of 0% to the Company’s other direct subsidiary, which is a “pass-through entity” for tax purposes.
|
Discussed below is our
Operating Net Income (Loss) by segment. This information is reflected in a manner utilized by management to assess the financial operations of the Company's various business lines.
|
|
Three Months Ended September 30, 2018
|
|
(In thousands)
|
|
Broker-
|
|
|
Asset Management
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
Dealer
|
|
|
Asset
Management
Fee Income
|
|
|
Investment
Income
|
|
|
Total Asset Management
|
|
|
Costs
|
|
|
|
|
|
|
Segments
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
21,095
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
21,095
|
|
Brokerage
|
|
|
4,676
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,676
|
|
Asset management related fees
|
|
|
6
|
|
|
|
4,878
|
|
|
|
16
|
|
|
|
4,894
|
|
|
|
-
|
|
|
|
(1,205
|
)
|
|
|
3,695
|
|
Principal transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
377
|
|
|
|
377
|
|
|
|
-
|
|
|
|
-
|
|
|
|
377
|
|
Loss on sale, payoff, and mark-to-market of loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(495
|
)
|
|
|
(495
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(495
|
)
|
Net dividend income
|
|
|
-
|
|
|
|
-
|
|
|
|
339
|
|
|
|
339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
339
|
|
Net interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
3,715
|
|
|
|
3,715
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,715
|
|
Provision for loan losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(470
|
)
|
|
|
(470
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(470
|
)
|
Adjusted net revenues
|
|
|
25,777
|
|
|
|
4,878
|
|
|
|
3,482
|
|
|
|
8,360
|
|
|
|
-
|
|
|
|
(1,205
|
)
|
|
|
32,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
23,202
|
|
|
|
4,794
|
|
|
|
1,535
|
|
|
|
6,329
|
|
|
|
2,688
|
|
|
|
(1,205
|
)
|
|
|
31,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax net income (loss)
|
|
|
2,575
|
|
|
|
84
|
|
|
|
1,947
|
|
|
|
2,031
|
|
|
|
(2,688
|
)
|
|
|
-
|
|
|
|
1,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) (assumed rate of 26% for Operating Platforms)
|
|
|
670
|
|
|
|
23
|
|
|
|
(153
|
)
|
|
|
(130
|
)
|
|
|
(363
|
)
|
|
|
-
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)
|
|
$
|
1,905
|
|
|
$
|
61
|
|
|
$
|
2,100
|
|
|
$
|
2,161
|
|
|
$
|
(2,325
|
)
|
|
$
|
-
|
|
|
$
|
1,741
|
|
|
|
Three Months Ended September 30, 2017
|
|
(In thousands)
|
|
Broker-
|
|
|
Asset Management
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
Dealer
|
|
|
Asset
Management
Fee Income
|
|
|
Investment
Income
|
|
|
Total Asset
Management
|
|
|
Costs
|
|
|
|
|
|
|
Segments
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
22,085
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,085
|
|
Brokerage
|
|
|
4,763
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,763
|
|
Asset management related fees
|
|
|
-
|
|
|
|
4,798
|
|
|
|
167
|
|
|
|
4,965
|
|
|
|
-
|
|
|
|
(821
|
)
|
|
|
4,144
|
|
Principal transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
867
|
|
|
|
867
|
|
|
|
-
|
|
|
|
-
|
|
|
|
867
|
|
Gain on sale, payoff, and mark-to-market of loans
|
|
|
-
|
|
|
|
-
|
|
|
|
260
|
|
|
|
260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
260
|
|
Net dividend income
|
|
|
-
|
|
|
|
-
|
|
|
|
278
|
|
|
|
278
|
|
|
|
-
|
|
|
|
-
|
|
|
|
278
|
|
Net interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
1,145
|
|
|
|
1,145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,145
|
|
Provision for loan losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(593
|
)
|
|
|
(593
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(593
|
)
|
Adjusted net revenues
|
|
|
26,848
|
|
|
|
4,798
|
|
|
|
2,124
|
|
|
|
6,922
|
|
|
|
-
|
|
|
|
(821
|
)
|
|
|
32,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
22,215
|
|
|
|
4,948
|
|
|
|
934
|
|
|
|
5,882
|
|
|
|
2,772
|
|
|
|
(821
|
)
|
|
|
30,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax net income (loss)
|
|
|
4,633
|
|
|
|
(150
|
)
|
|
|
1,190
|
|
|
|
1,040
|
|
|
|
(2,772
|
)
|
|
|
-
|
|
|
|
2,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) (assumed rate of 38% for Operating Platforms)
|
|
|
1,761
|
|
|
|
(57
|
)
|
|
|
(467
|
)
|
|
|
(524
|
)
|
|
|
(627
|
)
|
|
|
-
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)
|
|
$
|
2,872
|
|
|
$
|
(93
|
)
|
|
$
|
1,657
|
|
|
$
|
1,564
|
|
|
$
|
(2,145
|
)
|
|
$
|
-
|
|
|
$
|
2,291
|
|
|
|
Nine Months Ended September 30, 2018
|
|
(In thousands)
|
|
Broker-
|
|
|
Asset Management
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
Dealer
|
|
|
Asset
Management
Fee Income
|
|
|
Investment
Income
|
|
|
Total Asset
Management
|
|
|
Costs
|
|
|
|
|
|
|
Segments
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
70,318
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
70,320
|
|
Brokerage
|
|
|
14,787
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,787
|
|
Asset management related fees
|
|
|
16
|
|
|
|
13,439
|
|
|
|
5,318
|
|
|
|
18,757
|
|
|
|
-
|
|
|
|
(3,354
|
)
|
|
|
15,419
|
|
Principal transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
498
|
|
|
|
498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
498
|
|
Loss on sale, payoff, and mark-to-market of loans
|
|
|
-
|
|
|
|
-
|
|
|
|
(859
|
)
|
|
|
(859
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(859
|
)
|
Net dividend income
|
|
|
-
|
|
|
|
-
|
|
|
|
1,004
|
|
|
|
1,004
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,004
|
|
Net interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
8,769
|
|
|
|
8,769
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,769
|
|
Gain on repurchase of asset-backed securities issue
|
|
|
-
|
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(42
|
)
|
Provision for loan losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,400
|
)
|
|
|
(1,400
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,400
|
)
|
Adjusted net revenues
|
|
|
85,121
|
|
|
|
13,439
|
|
|
|
13,288
|
|
|
|
26,727
|
|
|
|
-
|
|
|
|
(3,352
|
)
|
|
|
108,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
76,528
|
|
|
|
14,570
|
|
|
|
9,096
|
|
|
|
23,666
|
|
|
|
7,519
|
|
|
|
(3,354
|
)
|
|
|
104,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax net income (loss)
|
|
|
8,593
|
|
|
|
(1,131
|
)
|
|
|
4,192
|
|
|
|
3,061
|
|
|
|
(7,519
|
)
|
|
|
2
|
|
|
|
4,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) (assumed rate of 26% for Operating Platforms)
|
|
|
2,234
|
|
|
|
(293
|
)
|
|
|
(289
|
)
|
|
|
(582
|
)
|
|
|
(1,009
|
)
|
|
|
-
|
|
|
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)
|
|
$
|
6,359
|
|
|
$
|
(838
|
)
|
|
|
4,481
|
|
|
$
|
3,643
|
|
|
$
|
(6,510
|
)
|
|
$
|
2
|
|
|
$
|
3,494
|
|
|
|
Nine Months Ended September 30, 2017
|
|
(In thousands)
|
|
Broker-
|
|
|
Asset Management
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
Dealer
|
|
|
Asset
Management
Fee Income
|
|
|
Investment
Income
|
|
|
Total Asset
Management
|
|
|
Costs
|
|
|
|
|
|
|
Segments
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking
|
|
$
|
54,813
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
54,813
|
|
Brokerage
|
|
|
15,127
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,127
|
|
Asset management related fees
|
|
|
4
|
|
|
|
14,965
|
|
|
|
1,827
|
|
|
|
16,792
|
|
|
|
-
|
|
|
|
(2,584
|
)
|
|
|
14,212
|
|
Principal transactions
|
|
|
-
|
|
|
|
-
|
|
|
|
3,200
|
|
|
|
3,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,200
|
|
Gain (loss) on sale, payoff, and mark-to-market of loans
|
|
|
-
|
|
|
|
-
|
|
|
|
1,143
|
|
|
|
1,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,143
|
|
Net dividend income
|
|
|
-
|
|
|
|
-
|
|
|
|
819
|
|
|
|
819
|
|
|
|
-
|
|
|
|
-
|
|
|
|
819
|
|
Net interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
2,100
|
|
|
|
2,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,100
|
|
Gain on repurchase of asset-backed securities issued
|
|
|
-
|
|
|
|
-
|
|
|
|
210
|
|
|
|
210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
210
|
|
Provision for loan losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,415
|
)
|
|
|
(2,415
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,415
|
)
|
Adjusted net revenues
|
|
|
69,944
|
|
|
|
14,965
|
|
|
|
6,884
|
|
|
|
21,849
|
|
|
|
-
|
|
|
|
(2,584
|
)
|
|
|
89,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
63,234
|
|
|
|
15,346
|
|
|
|
5,709
|
|
|
|
21,055
|
|
|
|
6,915
|
|
|
|
(2,584
|
)
|
|
|
88,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax net income (loss)
|
|
|
6,710
|
|
|
|
(381
|
)
|
|
|
1,175
|
|
|
|
794
|
|
|
|
(6,915
|
)
|
|
|
-
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) (assumed rate of 38% for Operating Platforms)
|
|
|
2,551
|
|
|
|
(145
|
)
|
|
|
(1,272
|
)
|
|
|
(1,417
|
)
|
|
|
(1,312
|
)
|
|
|
-
|
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net income (loss)
|
|
$
|
4,159
|
|
|
$
|
(236
|
)
|
|
$
|
2,447
|
|
|
$
|
2,211
|
|
|
$
|
(5,603
|
)
|
|
$
|
-
|
|
|
$
|
767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table
reconciles operating net income to Total Segments operating pre-tax net income, and also to consolidated pre-tax net income (loss) attributable to JMP Group LLC and to consolidated net income (loss) attributable to JMP Group LLC for the three months and nine months ended September 30, 2018 and 2017.
(In thousands)
|
|
Three Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Operating net income
|
|
$
|
1,741
|
|
|
$
|
2,291
|
|
Addback of Segment Income tax expense
|
|
|
177
|
|
|
|
610
|
|
Total Segments adjusted operating pre-tax net income
|
|
$
|
1,918
|
|
|
$
|
2,901
|
|
Subtract / (Add back)
|
|
|
|
|
|
|
|
|
Share-based awards and deferred compensation
|
|
|
76
|
|
|
|
696
|
|
General loan loss provision (reversal) - CLOs, CLO warehouse
|
|
|
855
|
|
|
|
(136
|
)
|
Early debt retirement/reissuance
|
|
|
170
|
|
|
|
-
|
|
Restructuring costs - CLOs
|
|
|
-
|
|
|
|
14
|
|
Amortization of intangible asset - CLO III
|
|
|
69
|
|
|
|
69
|
|
Unrealized gain - real estate-related depreciation and amortization
|
|
|
260
|
|
|
|
2,571
|
|
Unrealized mark-to-market gain - strategic equity investments
|
|
|
(327
|
)
|
|
|
(191
|
)
|
Total consolidation adjustments and reconciling Items
|
|
|
1,103
|
|
|
|
3,023
|
|
Consolidated pre-tax net income (loss) attributable to JMP Group LLC
|
|
$
|
815
|
|
|
$
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
527
|
|
|
|
1,113
|
|
Consolidated net income (loss) attributable to JMP Group LLC
|
|
$
|
288
|
|
|
$
|
(1,235
|
)
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Operating net income
|
|
$
|
3,494
|
|
|
$
|
767
|
|
Addback of Segment Income tax expense (benefit)
|
|
|
643
|
|
|
|
(178
|
)
|
Total Segments adjusted operating pre-tax net income
|
|
$
|
4,137
|
|
|
$
|
589
|
|
Subtract
|
|
|
|
|
|
|
|
|
Share-based awards and deferred compensation
|
|
|
289
|
|
|
|
1,863
|
|
General loan loss provision (reversal) - CLOs, CLO warehouse
|
|
|
2,348
|
|
|
|
697
|
|
Early debt retirement/reissuance
|
|
|
1,488
|
|
|
|
5,432
|
|
Restructuring costs - CLOs
|
|
|
54
|
|
|
|
300
|
|
Amortization of intangible asset - CLO III
|
|
|
207
|
|
|
|
207
|
|
Unrealized gain - real estate-related depreciation and amortization
|
|
|
1,864
|
|
|
|
6,472
|
|
Unrealized mark-to-market gain - strategic equity investments
|
|
|
16
|
|
|
|
297
|
|
Total Consolidation Adjustments and Reconciling Items
|
|
|
6,266
|
|
|
|
15,268
|
|
Consolidated pre-tax net loss attributable to JMP Group LLC
|
|
$
|
(2,129
|
)
|
|
$
|
(14,679
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(146
|
)
|
|
|
(169
|
)
|
Consolidated Net Loss attributable to JMP Group LLC
|
|
$
|
(1,983
|
)
|
|
$
|
(14,510
|
)
|
|
|
|
|
|
|
|
|
|
Three
M
onths
E
nded September 30
, 2018
Compared to Three Months Ended
September 30, 2017
Revenues
Investment Banking
Investment banking revenues, earned in our Broker-Dealer segment, decreased $1.0 million, or 4.5%, from $22.1 million for the quarter ended September 30, 2017 to $21.1 million for the same period in 2018. As a percentage of total net revenues after provision for loan losses, investment banking revenues decreased from
69.0%
for the quarter ended September 30, 2017 to
63.4%
for the quarter ended September 30, 2018
. On an operating basis, investment banking revenues were
64.1% and 67.0%
for the quarters ended September 30, 2018 and 2017, respectively, as a percentage of adjusted net revenues.
(Dollars in thousands)
|
|
Three Months Ended September 30,
|
|
|
Change from 2017 to 2018
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Count
|
|
|
Revenues
|
|
|
Count
|
|
|
Revenues
|
|
|
Count
|
|
|
$
|
|
|
%
|
|
Equity and debt origination
|
|
|
21
|
|
|
$
|
11,366
|
|
|
|
22
|
|
|
$
|
15,639
|
|
|
|
(1
|
)
|
|
$
|
(4,273
|
)
|
|
|
-27.3
|
%
|
Advisory
|
|
|
4
|
|
|
|
9,729
|
|
|
|
6
|
|
|
|
6,446
|
|
|
|
(2
|
)
|
|
|
3,283
|
|
|
|
50.9
|
%
|
Total transactions
|
|
|
25
|
|
|
$
|
21,095
|
|
|
|
28
|
|
|
$
|
22,085
|
|
|
|
(3
|
)
|
|
$
|
(990
|
)
|
|
|
-4.5
|
%
|
The decrease in revenues was primarily
driven by a 7.0% increase in the average size of the fee paid per transaction and a 10.7% decrease in the number of transactions completed. In addition, of the total investment banking revenue earned during the three months ended September 30, 2018, $0.9 million is related to a gross up of expenses as a result of the Company's adoption of ASC 606. See Note 3 to the Consolidated Financial Statements for additional details on the new revenue standard and accounts affected by adoption. The number of transactions in which we acted as a bookrunning manager was one and six for the three months ended September 30, 2018 and 2017, respectively.
Brokerage Revenues
Brokerage revenu
es earned in our Broker-Dealer segment were $4.7 million and $4.8 million for the quarters ended September 30, 2018 and 2017, respectively. Brokerage revenues decreased as a percentage of total net revenues after provision for loan losses, from
14.9%
for the
quarter ended September 30, 2017 to
14.1%
for the quarter ended September 30, 2018. On an operating basis, brokerage revenues were
14.2% and 14.5% for t
he quarters ended September 30, 2018 and 2017, respectively, as a percentage of adjusted net revenues.
Asset Management Fees
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Base management fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
3,199
|
|
|
$
|
3,941
|
|
Less: Non-controlling interest
|
|
|
(123
|
)
|
|
|
(152
|
)
|
Total base management fees
|
|
|
3,076
|
|
|
|
3,789
|
|
|
|
|
|
|
|
|
|
|
Incentive fees:
|
|
|
|
|
|
|
|
|
Less: Non-controlling interest
|
|
|
503
|
|
|
|
73
|
|
Less: Non-controlling interest
|
|
|
(149
|
)
|
|
|
-
|
|
Total incentive fees
|
|
|
354
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
Other fee income:
|
|
|
|
|
|
|
|
|
Fundraising and other income:
|
|
|
306
|
|
|
|
282
|
|
Less: Non-controlling interest
|
|
|
(41
|
)
|
|
|
-
|
|
Total other fee income
|
|
|
265
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
Asset management related fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
|
3,702
|
|
|
|
4,014
|
|
Fees reported as other income
|
|
|
306
|
|
|
|
282
|
|
Less: Non-controlling interest
|
|
|
(313
|
)
|
|
|
(152
|
)
|
Total Segment asset management related fee revenues
|
|
$
|
3,695
|
|
|
$
|
4,144
|
|
Fees reported as asset management fees were $3.7 million and $4.0 million for the quarters ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, asset management revenues decreased from
12.5%
for the quarter ended September 30, 2017 to
11.1%
for the quarter ended September 30, 2018. Fees reported as other income were $0.3 million for both the quarters ended September 30, 2018 and 2017. As a percentage of total net revenues after provision for loan losses, other income was
0.9%
for both of the quarters ended September 30, 2018 and 2017.
Total segment asset management-related fees include base management fees and incentive fees from our funds, HCC, and CLOs under management, as well as other income from fee-sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds. Total segment asset management-related fee revenues are reconciled to the GAAP measure, total asset management fee revenues, in the table above. We believe that presenting operating asset management-related fees is useful to investors as a means of assessing the performance of our combined asset management activities, including fundraising and other services for third parties. We believe that segment asset management-related fee revenues provides 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. We also believe 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 the various asset management activities on the Company’s total net revenues.
Total segment asset management related fee revenue decreased $0.4 million, from $4.1 million for the quarter ended September 30, 2017 to $3.7 million for the quarter ended September 30, 2018. Total base management fees were $3.1 million and $3.8 million for the quarters ended September 30
, 2018 and 2017, respectively. Total incentive fees increased $0.3 million, from a $0.1 million for the quarter ended September 30, 2017 to $0.4 million for the same period in 2018. On an operating basis, asset management related fee revenues were 11.2% and 12.6% for the quarters ended September 30, 2018 and 2017, respectively, as a percentage of adjusted net revenues.
Principal Transactions
Principal transaction revenues increased $
1.9
million, from a loss of $1.4 million for the quarter ended September 30, 2017 to a gain of $0.5
million for the same period in 2018. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were negative 4.3% for the quarter ended September 30, 2017 and a positive
1.4%
for the quarter ended September 30, 2018.
Total segment principal transaction revenues decreased $0.5 million, from a gain of $0.9 million for the quarter ended September 30, 2017 to a gain of $0.4
million for the same period in 2018. Total segment principal transaction revenues are a non-GAAP financial measure that aggregates our segment reported principal transaction revenues across each segment. The principal transaction revenues for both 2018 and 2017 were reported in our Investment Income segment. Total segment principal transaction revenues are reconciled to the GAAP measure, total principal transaction revenues, in the table below.
|
|
Three Months Ended September 30,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Equity and other securities excluding non-controlling interest
|
|
$
|
292
|
|
|
$
|
293
|
|
Warrants and other investments
|
|
|
83
|
|
|
|
438
|
|
Investment partnerships
|
|
|
2
|
|
|
|
136
|
|
Total segment principal transaction revenues
|
|
|
377
|
|
|
|
867
|
|
Operating adjustment addbacks
|
|
|
92
|
|
|
|
(2,259
|
)
|
Total principal transactions revenues
|
|
$
|
469
|
|
|
$
|
(1,392
|
)
|
|
|
|
|
|
|
|
|
|
On a GAAP basis, the increase in principal transaction revenues is primarily attributed to the cessation of recording equity-method losses in an investment whose carrying value has been reduced to zero on the balance sheet, partially offset by decreases in net income earned on hedge fund investments. On an operating basis, as a percentage of total adjusted net revenues, principal transaction revenues decreased from 2.6% for the quarter ended September 30, 2017 to 1.1% for the quarter ended September 30, 2018.
Gain and Loss on Sale and Payoff of Loans
Gain on sale and payoff of loans decreased from a gain of $0.3 million for the quarter ended September 30, 2017 to a loss of $0.6 million for the quarter ended September 30, 2018. Gain and loss on sale and payoff of loans was incurred in our Investment Income
segment.
On a segment basis, gain on sale and payoff of loans decreased from a gain of $0.3 million for the quarter ended September 30, 2017 to a loss of $0.5 million for the quarter ended September 30, 2018.
Net Dividend Income
Net dividend income was $0.3 million for the both the quarters ended September 30, 2018 and 2017. Net dividend income primarily related to dividends from our HCC investment.
Net Interest
Income/Expense
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
CLO II loan contractual interest income
|
|
$
|
-
|
|
|
$
|
29
|
|
CLO II ABS issued contractual interest expense
|
|
|
-
|
|
|
|
-
|
|
Net CLO II contractual interest
|
|
|
-
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
CLO III loan contractual interest income
|
|
$
|
5,553
|
|
|
$
|
4,743
|
|
CLO III ABS issued contractual interest expense
|
|
|
(3,343
|
)
|
|
|
(2,975
|
)
|
Net CLO III contractual interest
|
|
|
2,210
|
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
CLO IV loan contractual interest income
|
|
$
|
6,939
|
|
|
$
|
5,861
|
|
CLO IV ABS issued contractual interest expense
|
|
|
(4,943
|
)
|
|
|
(3,876
|
)
|
Net CLO IV contractual interest
|
|
|
1,996
|
|
|
|
1,985
|
|
|
|
|
|
|
|
|
|
|
CLO V loan contractual interest income
|
|
$
|
5,780
|
|
|
$
|
33
|
|
CLO V warehouse/ABS issued contractual interest expense
|
|
|
(3,816
|
)
|
|
|
(7
|
)
|
Net CLO V contractual interest
|
|
|
1,964
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Bond Payable interest expense
|
|
$
|
(1,792
|
)
|
|
$
|
(1,900
|
)
|
|
|
|
|
|
|
|
|
|
Less: Non-controlling interest in CLOs
|
|
|
(1,148
|
)
|
|
|
(944
|
)
|
Other interest income
|
|
|
485
|
|
|
|
181
|
|
Total Segment net interest income
|
|
$
|
3,715
|
|
|
$
|
1,145
|
|
Non-controlling interest in CLOs
|
|
|
1,148
|
|
|
|
944
|
|
Total net interest income
|
|
$
|
4,863
|
|
|
$
|
2,089
|
|
Net interest income increased $2.8 million from $2.1 million for the quarter ended September 30, 2017 to $4.9 million for the quarter ended September 30, 2018. The increase was driven primarily by the increased net asset balance at CLO V, which was in the warehouse phase in 2017 and securitized in July 2018. As a percentage of total net revenues after provision for loan losses, net interest income was
6.5%
for the quarter ended September 30, 2017 and
14.6%
for the quarter ended September 30, 2018.
Total segment net interest income increased from $1.1 million for the quarter ended September 30, 2017 to $3.7 million for the quarter ended September 30, 2018.
Net interest income is reported in our Investment Income segment and reflects our portion of the net CLO contractual interest. Total segment net interest income is reconciled to the GAAP measure, total net interest expense, in the table above. As a percentage of total adjusted net revenues, net interest income was 11.3% and 3.5% for the quarters ended September 30, 2018 and 2017, respectively.
The following table sets forth contractual interest income and expense related to CLO loans and ABS issued and their weighted average contractual interest rates:
(In thousands)
|
|
Three Months Ended September 30, 2018
|
|
|
|
Interest Income
(Expense)
|
|
|
Average CLO
Loan (CLO ABS
Issued) Balance
|
|
|
Weighted
Average
Contractual
Interest Rate
|
|
|
Weighted
Average
LIBOR
|
|
|
Spread to
Weighted
Average
LIBOR
|
|
CLO III loan contractual interest income
|
|
$
|
5,553
|
|
|
|
352,740
|
|
|
|
5.87
|
%
|
|
|
2.34
|
%
|
|
|
3.53
|
%
|
CLO III ABS issued contractual interest expense
|
|
|
(3,343
|
)
|
|
|
(332,100
|
)
|
|
|
3.74
|
%
|
|
|
2.39
|
%
|
|
|
1.35
|
%
|
CLO IV loan contractual interest income
|
|
|
6,939
|
|
|
|
443,247
|
|
|
|
5.88
|
%
|
|
|
2.34
|
%
|
|
|
3.54
|
%
|
CLO IV ABS issued contractual interest expense
|
|
|
(4,943
|
)
|
|
|
(422,017
|
)
|
|
|
4.45
|
%
|
|
|
2.39
|
%
|
|
|
2.06
|
%
|
CLO V loan contractual interest income
|
|
|
5,780
|
|
|
|
368,143
|
|
|
|
5.81
|
%
|
|
|
2.33
|
%
|
|
|
3.48
|
%
|
CLO V warehouse/ABS issued contractual interest expense
|
|
|
(3,816
|
)
|
|
|
(358,255
|
)
|
|
|
4.02
|
%
|
|
|
2.27
|
%
|
|
|
1.75
|
%
|
Net CLO contractual interest
|
|
$
|
6,170
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
(In thousands)
|
|
Three Months Ended September 30, 2017
|
|
|
|
Interest Income
(Expense)
|
|
|
Average CLO
Loan (CLO ABS
Issued) Balance
|
|
|
Weighted
Averag
e
Contractual
Interest Rate
|
|
|
Weighted
Average
LIBOR
|
|
|
Spread to
Weighted
Average
LIBOR
|
|
CLO II loan contractual interest income
|
|
$
|
29
|
|
|
|
2,435
|
|
|
|
4.10
|
%
|
|
|
0.00
|
%
|
|
|
4.10
|
%
|
CLO III loan contractual interest income
|
|
|
4,743
|
|
|
|
349,038
|
|
|
|
5.07
|
%
|
|
|
1.28
|
%
|
|
|
3.79
|
%
|
CLO III ABS issued contractual interest expense
|
|
|
(2,975
|
)
|
|
|
(332,100
|
)
|
|
|
3.18
|
%
|
|
|
1.28
|
%
|
|
|
1.90
|
%
|
CLO IV loan contractual interest income
|
|
|
5,861
|
|
|
|
435,724
|
|
|
|
5.02
|
%
|
|
|
1.33
|
%
|
|
|
3.70
|
%
|
CLO IV ABS issued contractual interest expense
|
|
|
(3,876
|
)
|
|
|
(424,718
|
)
|
|
|
3.40
|
%
|
|
|
1.33
|
%
|
|
|
2.08
|
%
|
CLO V loan contractual interest income
|
|
|
33
|
|
|
|
2,424
|
|
|
|
4.88
|
%
|
|
|
1.24
|
%
|
|
|
3.64
|
%
|
CLO V warehouse issued contractual interest expense
|
|
|
(7
|
)
|
|
|
(3,960
|
)
|
|
|
2.61
|
%
|
|
|
1.24
|
%
|
|
|
1.38
|
%
|
Net CLO contractual interest
|
|
$
|
3,782
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loss on Repurchase, Reissuance, or Early Retirement of Debt
Loss on repurchase, reissuance, or early retirement of debt increased from zero for the quarter ended September 30, 2017 to $0.2 million for the quarter ended September 30, 2018. The increase was related to the Company's early redemption of $10.0 million of the 8% Senior Notes. As a percentage of adjusted net revenues after provision for loan losses, the loss on repurchase/early retirement was 0.5% and zero for the quarters ended September 30, 2018 and 2017, respectively.
Provision for Loan Losses
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
CLO related reversal (provision)
|
|
$
|
(1,306
|
)
|
|
$
|
229
|
|
Non-CLO related provision
|
|
|
(148
|
)
|
|
|
(597
|
)
|
Provision for Loan Losses
|
|
$
|
(1,454
|
)
|
|
$
|
(368
|
)
|
Less: General reserves related to CLO II, CLO III, CLO IV, CLO V, CLO V warehouse, and non-controlling interest
|
|
|
984
|
|
|
|
(225
|
)
|
Segment provision for loan losses
|
|
$
|
(470
|
)
|
|
$
|
(593
|
)
|
Provision for loan losses increased $1.1 million, from a
provision of $0.4 million for the quarter ended September 30, 2017 to a provision of $1.5 million for the same period in 2018. As a percent of net revenues after provision for loan losses, the provision for loan losses was negative 4.4% and 1.1% for the quarters ended September 30, 2018 and 2017, respectively.
Total segment provision for loan losses decreased from $0.6 million for the quarter ended September 30, 2017 to $0.5 million for the quarter ended September 30, 2018.
Total segment provision for loan losses is a non-GAAP financial measure that aggregates our segment reported provision for loan losses across each segment. Our total segment provision for loan losses in 2018 and 2017 was solely recognized in our Investment Income segment. As a percent of total adjusted net revenues, segment provision for loan losses was negative 4.4% and negative 1.8% for the quarters ended September 30, 2018 and 2017, respectively.
Expenses
Non-Interest Expenses
Compensation and Benefits
Compensation and benefits, which includes employee payroll, taxes and benefits, performance-based cash bonus and commissions, as well as equity-based compensation to our employees and managing directors, decreased $1.9 million, or 7.7%, from $24.6 million for the quarter ended September 30, 2017 to $22.7 million for the quarter ended September 30, 2018.
Employee payroll, taxes and benefits, and consultant fees were $10.4 million and $11.1 million for the quarters ended September 30, 2018 and
2017, respectively. Performance-based bonus and commission decreased $0.9 million from $12.4 million for the quarter ended September 30, 2017 to $11.5 million for the quarter ended September 30, 2018.
Equity-based compensation wa
s $0.5 million and $0.9 million fo
r the quarters ended September 30, 2018 and 2017, respectively.
Compensation and benefits as a percentage of total net revenues after provision for loan losses decreased from
76.7%
for the quarter ended September 30, 2017 to
68.2%
for the quarter ended September 30, 2018.
Our segment reported compensation and benefits recognizes 100% of the cost of deferred compensation, including non-cash share-based compensation expense, in the period for which such compensation was awarded, instead of recognizing such cost over the vesting period as
required under GAAP, in order to match compensation expense with the actual period upon which the compensation was based. The segment reported compensation and benefits decreased $1.2 million from $23.5 million for the quarter ended September 30, 2017 to $22.3 million for the quarter ended September 30, 2018. As a percent of total adjusted net revenues, compensation and benefits were 67.7% and 71.3% for the quarters ended September 30, 2018 and 2017, respectively.
Administration
Administration expense was $2.3 million for the quarter ended September 30, 2018 and $1.5 million for the quarter ended September 30, 2017. As a percentage of total net revenues after provision for loan losses, administration expense increased from
4.6%
for the quarter ended September 30
, 2017 to
6.9%
for the same period in 2018.
Brokerage, Clearing and Exchange Fees
Brokerage, clearing and exchange fees was $0.7 million for the quarter ended September 30, 2017 and $0.8 million for the same period in 2018. As a percentage of total net revenues after provision for loan losses, our brokerage, clearing and exchange fees increased from
2.3%
for the quarter ended September 30, 2017 to
2.4%
for the same period in 2018.
Travel and Business Development
Travel and business development expenses increased $0.4 million, from $0.7 million for the quarter ended September 30, 2017 to $1.1
million for the quarter ended September 30, 2018. As a percentage of total net revenues after provision for loan losses, travel and business development expense was
3.2%
and
2.2%
and for the quarters ended September 30, 2018 and 2017, respectively.
Managed deal expenses
Managed deal expenses were $0.6 million and zero for the quarters ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, managed deal expenses increased from zero percent for the quarter ended September 30, 2017 to
1.8%
for the same period in 2018. T
he increase is related to a gross up of expenses as a result of the Company's adoption of ASC 606. See Note 3 to the Consolidated Financial Statements for additional details on the new revenue standard and accounts affected by adoption.
Communications and Technology
Communications and technology expenses were $1.0 million
for both the quarters ended September 30, 2018 and 2017. As a percentage of total net revenues after provision for loan losses, communications and technology expense decreased from
3.3%
for the quarter ended September 30, 2017 to
3.1%
for the same period in 2018.
Occupancy
Occupancy expenses were $1.1 million for the quarter ended September 30, 2017 and $1.2 million for the quarter ended September 30, 2018. As a percentage of total net revenues after provision for loan losses, occupancy expenses were
3.5%
for both the quarter ended September 30, 2018 and 2017.
Professional Fees
Professional fees were $1.3 million and $1.1 million
for the quarters ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, professional fees increased from
3.4%
for the quarter ended September 30, 2017 to
3.8%
for the same period in 2018.
Depreciation
Depreciation expenses were $0.3 million for both of the quarters ended September 30, 2018 and 2017. As a percentage of total net revenues after provision for loan losses, depreciation was
0.9%
for both the quarters ended September 30, 2018 and 2017.
Ot
her Expenses
Other expenses
were $0.4 million for both the quarters ended September 30, 2018 and 2017. As a percentage of total net revenues after provision for loan losses, other expenses was
1.1%
for both the quarter ended September 30, 2018 and 2017.
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest was $0.8 million for both the quarters ended September 30
, 2018 and 2017. Non-controlling interest for the quarter ended September 30, 2017 includes the interest of third parties in CLO III and HCAP Advisors. Non-controlling interest for the quarter ended September 30, 2018 includes the interest of third parties in CLO III, HCAP Advisors, and HCS Strategic Investments LLC.
Provision for Income Taxes
Income tax expense was $0.5 million for the quarter ended September 30, 2018, while an income tax expense of $1.1 million was recorded for the quarter ended September 30, 2017.
For the purposes of calculating operating net income, a combined federal and state tax rate of 26% is assumed for our taxable direct subsidiaries, adjusted for a cap on allowable interest expense deduction due to recent tax reform, while a rate of 0% is applied to our direct subsidiary, which is a “pass-through entity” for tax purposes.
Segment income tax was an expense of $0.2 million and $0.6 million for the quarters ended September 30, 2018 and 2017, respectively.
The decrease was mainly due to a lower projected effective tax rate for the current year then the prior year.
U.S. federal corporate income tax reform included a broad range of proposals affecting businesses, including corporate tax rates, business deductions and international tax provisions. The reduction in the federal corporate tax rate required a revaluation of our deferred tax assets at the corporate entity level. International tax provisions, including a shift to a territorial system, did not impact JMP Group LLC’s investment in foreign corporations, as the Company has historically included accumulated earnings and profits from controlled foreign corporations.
Nine
M
onths
E
nded September 30
, 2018
Compared to Nine Months Ended
September 30, 2017
Revenues
Investment Banking
Investment banking revenues, included in our Broker-Dealer segment, increased $15.5 million, or
28.3%
, from $54.8 million for the nine months ended September 30, 2017 to $70.3 million for the same period in 2018. As a percentage of total net revenues after provision for loan losse
s, investment banking revenues were
67.1%
and
68.9%
for the nine months ended September 30, 2018 and 2017, respectively
. On an operating basis, investment banking revenues were 64.8% and 61.4% for the nine months ended September 30, 2018 and 2017, respectively, as a percentage of adjusted net revenues.
(Dollars in thousands)
|
|
Nine Months Ended September 30,
|
|
|
Change from 2017 to 2018
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Count
|
|
|
Revenues
|
|
|
Count
|
|
|
Revenues
|
|
|
Count
|
|
|
$
|
|
|
%
|
|
Equity and debt origination
|
|
|
73
|
|
|
$
|
47,276
|
|
|
|
82
|
|
|
$
|
40,493
|
|
|
|
(9
|
)
|
|
$
|
6,784
|
|
|
|
16.8
|
%
|
Advisory
|
|
|
17
|
|
|
|
23,042
|
|
|
|
14
|
|
|
|
14,321
|
|
|
|
3
|
|
|
|
8,722
|
|
|
|
60.9
|
%
|
Total transactions
|
|
|
90
|
|
|
$
|
70,319
|
|
|
|
96
|
|
|
$
|
54,813
|
|
|
|
(6
|
)
|
|
$
|
15,505
|
|
|
|
28.3
|
%
|
The increase in revenues was driven primarily by
a 36.8% increase in the average size of the fee paid per transaction, partially offset by a 6.3% decrease in the number of transactions completed. In addition, $5.6 million of the increase is related to a gross up of expenses as a result of the Company's adoption of ASC 606. See Note 3 to the Consolidated Financial Statements for additional details on the new revenue standard and accounts affected by adoption. The number of transactions in which we acted as a bookrunning manager decreased from eighteen to twelve for the nine months ended September 30, 2017 and 2018, respectively.
Brokerage Revenues
Brokerage revenu
es earned in our Broker-Dealer segment were $14.8 million and $15.1 million for the nine months ended September 30, 2018 and 2017, respectively. Brokerage revenues decreased as a percentage of total net revenues after provision for loa
n losses, from
19.0%
for the nine months
ended September 30, 2017 to
14.1%
for the nine months ended September 30, 2018. On an operating basis, brokerage revenues were 13.6% and 17.0% for the nine months ended September 30, 2018 and 2017, respectively, as a percentage of adjusted net revenues.
Asset Management Fees
(In thousands)
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Base management fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
9,524
|
|
|
$
|
12,085
|
|
Less: Non-controlling interest
|
|
|
(483
|
)
|
|
|
(659
|
)
|
Total base management fees
|
|
|
9,041
|
|
|
|
11,426
|
|
|
|
|
|
|
|
|
|
|
Incentive fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
5,981
|
|
|
$
|
1,993
|
|
Less: Non-controlling interest
|
|
|
(149
|
)
|
|
|
(128
|
)
|
Total incentive fees
|
|
|
5,832
|
|
|
|
1,865
|
|
|
|
|
|
|
|
|
|
|
Other fee income:
|
|
|
|
|
|
|
|
|
Fundraising and other income:
|
|
$
|
666
|
|
|
$
|
921
|
|
Less: Non-controlling interest
|
|
|
(120
|
)
|
|
|
-
|
|
Total other fee income
|
|
|
546
|
|
|
|
921
|
|
|
|
|
|
|
|
|
|
|
Asset management related fees:
|
|
|
|
|
|
|
|
|
Fees reported as asset management fees
|
|
$
|
15,505
|
|
|
$
|
14,078
|
|
Fees reported as other income
|
|
|
666
|
|
|
|
921
|
|
Less: Non-controlling interest
|
|
|
(752
|
)
|
|
|
(787
|
)
|
Total Segment asset management related fee revenues
|
|
$
|
15,419
|
|
|
$
|
14,212
|
|
Fees reported as asset management fees were $15.5 million and $14.1 million for the nine months ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, asset management revenues decreased from
17.7%
for the nine months ended September 30, 2017 to
14.8%
for the nine months ended September 30, 2018. Fees reported as other income were $0.7 million and $0.9 million for the nine months ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, other income was
1.2%
and
0.6%
for the nine months ended September 30, 2017 and for the nine months
ended September 30, 2018.
Total segment asset management-related fees include base management fees and incentive fees from our funds, HCC ,and CLOs under management, as well as other income from fee-sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds. Total segment asset management-related fee revenues are reconciled to the GAAP measure, total asset management fee revenues, in the table above. We believe that presenting operating asset management-related fees is useful to investors as a means of assessing the performance of our combined asset management activities, including fundraising and other services for third parties. We believe that segment asset management-related fee revenues provides 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. We also believe 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 the various asset management activities on the Company’s total net revenues.
Total segment asset management related fee revenue increased $1.2 million, from $14.2 million for the nine months ended September 30, 2017 to $15.4 million for the nine months ended September 30, 2018. Total base management fees were $9.0 million and $11.4 million for the nine months ended September 30
, 2018 and 2017, respectively. Total incentive fees increased $3.9 million, from a $1.9 million for the nine months ended September 30, 2017 to $5.8 million for the same period in 2018. On an operating basis, asset management related fee revenues were 14.2% and 15.9% for the nine months ended September 30, 2018 and 2017, respectively, as a percentage of adjusted net revenues.
Principal Transactions
Principal transaction revenues increased $
2.1
million, from a loss of $3.6 million for the nine months ended September 30, 2017 to a loss of $1.5
million for the same period in 2018. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were negative 4.5% for the nine months ended September 30, 2017 and a negative 1.4% for the nine months ended September 30, 2018.
Total segment principal transaction revenues decreased $2.7 million, from a gain of $3.2 million for the nine months ended September 30, 2017 to a gain of $0.5 million for the same period in 2018. Total segment principal transaction revenues are a non-GAAP financial measure that aggregates our segment reported principal transaction revenues across each segment. The principal transaction revenues for both 2018 and 2017 were reported in our Investment Income segment. Total segment principal transaction revenues are reconciled to the GAAP measure, total principal transaction revenues, in the table below.
(In thousands)
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and other securities excluding non-controlling interest
|
|
$
|
(537
|
)
|
|
$
|
770
|
|
|
Warrants and other investments
|
|
|
815
|
|
|
|
1,290
|
|
|
Investment partnerships
|
|
|
220
|
|
|
|
1,140
|
|
|
Total segment principal transaction revenues
|
|
|
498
|
|
|
|
3,200
|
|
|
Operating adjustment addbacks
|
|
|
(1,965
|
)
|
|
|
(6,808
|
)
|
|
Total principal transactions revenues
|
|
$
|
(1,467
|
)
|
|
$
|
(3,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
On a GAAP basis, the increase in income from principal transaction revenues is the result of the cessation of recording equity-method losses investment due to a reduction of the carrying balance of the investment to zero on the balance sheet, partially offset by decreases in net income earned on hedge funds. On an operating basis, as a percentage of total net revenues after provision for loan losses, principal transaction revenues decreased from 3.6% for the nine months ended September 30, 2017 to 0.5% for the nine months ended September 30, 2018.
Gain (Loss) on Sale and Payoff of Loans
Gain
on sale and payoff of loans decreased from a gain of $1.2 million for the nine months ended September 30, 2017 to a loss of $0.9 million for the nine months ended September 30, 2018. Gain and loss on sale and payoff of loans was incurred in our Investment Income segment.
On a segment basis, gain on sale and payoff of loans decreased from a gain of $1.1 million for the nine months ended September 30, 2017 to a $0.9 million loss for the nine months ended September 30, 2018.
Net Dividend In
come
Net dividend income was $0.8 million for the nine months ended September 30, 2017 and $0.9 million for the same period of 2018. Net dividend income primarily related to dividends from our HCC investment.
Net Interest
Income/Expense
(In thousands)
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
CLO I loan contractual interest income
|
|
$
|
-
|
|
|
$
|
480
|
|
CLO I ABS issued contractual interest expense
|
|
|
-
|
|
|
|
(691
|
)
|
Net CLO I contractual interest
|
|
|
-
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
CLO II loan contractual interest income
|
|
$
|
-
|
|
|
$
|
6,474
|
|
CLO II ABS issued contractual interest expense
|
|
|
-
|
|
|
|
(4,807
|
)
|
Net CLO II contractual interest
|
|
|
-
|
|
|
|
1,667
|
|
|
|
|
|
|
|
|
|
|
CLO III loan contractual interest income
|
|
$
|
15,885
|
|
|
$
|
14,147
|
|
CLO III ABS issued contractual interest expense
|
|
|
(9,680
|
)
|
|
|
(8,687
|
)
|
Net CLO III contractual interest
|
|
|
6,205
|
|
|
|
5,460
|
|
|
|
|
|
|
|
|
|
|
CLO IV loan contractual interest income
|
|
$
|
19,691
|
|
|
$
|
8,035
|
|
CLO IV ABS issued contractual interest expense
|
|
|
(13,879
|
)
|
|
|
(4,697
|
)
|
Net CLO IV contractual interest
|
|
|
5,812
|
|
|
|
3,338
|
|
|
|
|
|
|
|
|
|
|
CLO V loan contractual interest income
|
|
$
|
10,475
|
|
|
$
|
33
|
|
CLO V warehouse/ABS issued contractual interest expense
|
|
|
(6,148
|
)
|
|
|
(7
|
)
|
Net CLO V contractual interest
|
|
|
4,327
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Bond Payable interest expense
|
|
|
(5,630
|
)
|
|
|
(5,701
|
)
|
|
|
|
|
|
|
|
|
|
Less: Non-controlling interest in CLOs
|
|
|
(3,137
|
)
|
|
|
(2,914
|
)
|
|
|
|
|
|
|
|
|
|
Other interest income
|
|
|
1,192
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
Total Segment net interest income
|
|
$
|
8,769
|
|
|
$
|
2,100
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in CLOs
|
|
|
3,137
|
|
|
|
2,914
|
|
|
|
|
|
|
|
|
|
|
Total net interest income
|
|
$
|
11,906
|
|
|
$
|
5,014
|
|
|
|
|
|
|
|
|
|
|
Net interest income increased $6.9 million from $5.0 million for the nine months ended September 30, 2017 to $11.9 million for the nine months ended September 30, 2018. The increase was driven primarily by the increased net asset balance at CLO IV and CLO V, leading to an increase in net interest income of $2.5 million and $4.3 million, respectively. CLO IV was securitized in June 2017 and CLO V was securitized in July 2018. The increase in net interest income from CLO IV and CLO V was partially offset by the loss of $1.7 million in net interest earned from CLO II, which was liquidated in the second quarter of 2017. As a percentage of total net revenues after provision for loan losses, net interest income was
6.3%
for the nine months ended September 30, 2017 and
11.4%
for the nine months ended September 30, 2018.
Total segment net interest income increased from $2.1 million for the nine months ended September 30, 2017 to $8.8 million for the nine months ended September 30, 2018.
Net interest income is reported in our Investment Income segment and reflects our portion of the net CLO contractual interest. Total segment net interest income is reconciled to the GAAP measure, total net interest expense, in the table above. As a percentage of adjusted net revenues, net interest income was 8.1% and 2.4% for the nine months ended September 30, 2018 and 2017, respectively.
The following table sets forth contractual interest income and expense related to CLO loans and ABS issued and their weighted average contractual interest rates:
(In thousands)
|
|
Nine Months Ended September 30, 2018
|
|
|
|
Interest Income
(Expense)
|
|
|
Average CLO
Loan (CLO ABS
Issued) Balance
|
|
|
Weighted
Average
Contractual
Interest Rate
|
|
|
Weighted
Average
LIBOR
|
|
|
Spread to
Weighted
Average
LIBOR
|
|
CLO III loan contractual interest income
|
|
$
|
15,885
|
|
|
|
351,788
|
|
|
|
5.69
|
%
|
|
|
2.08
|
%
|
|
|
3.61
|
%
|
CLO III ABS issued contractual interest expense
|
|
|
(9,680
|
)
|
|
|
(332,100
|
)
|
|
|
3.56
|
%
|
|
|
2.11
|
%
|
|
|
1.44
|
%
|
CLO IV loan contractual interest income
|
|
|
19,691
|
|
|
|
438,583
|
|
|
|
5.69
|
%
|
|
|
2.08
|
%
|
|
|
3.61
|
%
|
CLO IV ABS issued contractual interest expense
|
|
|
(13,879
|
)
|
|
|
(422,847
|
)
|
|
|
4.18
|
%
|
|
|
2.12
|
%
|
|
|
2.07
|
%
|
CLO V loan contractual interest income
|
|
|
10,475
|
|
|
|
231,550
|
|
|
|
5.66
|
%
|
|
|
2.33
|
%
|
|
|
3.32
|
%
|
CLO V warehouse/ABS issued contractual interest expense
|
|
|
(6,148
|
)
|
|
|
(209,618
|
)
|
|
|
3.58
|
%
|
|
|
2.08
|
%
|
|
|
1.50
|
%
|
Net CLO contractual interest
|
|
$
|
16,344
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
(In thousands)
|
|
Nine Months Ended September 30, 2017
|
|
|
|
Interest Income (Expense)
|
|
|
Average CLO
Loan (CLO ABS
Issued) Balance
|
|
|
Weighted
Average
Contractual
Interest Rate
|
|
|
Weighted
Average
LIBOR
|
|
|
Spread to
Weighted
Average
LIBOR
|
|
CLO I loan contractual interest income
|
|
$
|
480
|
|
|
$
|
6,975
|
|
|
|
4.10
|
%
|
|
|
0.39
|
%
|
|
|
3.71
|
%
|
CLO I ABS issued contractual interest expense
|
|
|
(691
|
)
|
|
|
(85,500
|
)
|
|
|
1.03
|
%
|
|
|
0.39
|
%
|
|
|
0.64
|
%
|
CLO II loan contractual interest income
|
|
|
6,474
|
|
|
|
162,643
|
|
|
|
4.96
|
%
|
|
|
0.00
|
%
|
|
|
4.96
|
%
|
CLO II ABS issued contractual interest expense
|
|
|
(4,807
|
)
|
|
|
(256,749
|
)
|
|
|
2.98
|
%
|
|
|
1.07
|
%
|
|
|
1.91
|
%
|
CLO III loan contractual interest income
|
|
|
14,147
|
|
|
|
354,518
|
|
|
|
5.01
|
%
|
|
|
1.14
|
%
|
|
|
3.87
|
%
|
CLO III loan contractual interest income
|
|
|
(8,687
|
)
|
|
|
(332,100
|
)
|
|
|
3.13
|
%
|
|
|
1.14
|
%
|
|
|
1.99
|
%
|
CLO IV loan contractual interest income
|
|
|
8,035
|
|
|
|
195,459
|
|
|
|
4.96
|
%
|
|
|
1.33
|
%
|
|
|
3.64
|
%
|
CLO IV ABS issued contractual interest expense
|
|
|
(4,697
|
)
|
|
|
(320,946
|
)
|
|
|
3.05
|
%
|
|
|
1.22
|
%
|
|
|
1.83
|
%
|
CLO V loan contractual interest income
|
|
|
33
|
|
|
|
817
|
|
|
|
4.88
|
%
|
|
|
1.24
|
%
|
|
|
3.64
|
%
|
CLO V warehouse issued contractual interest expense
|
|
|
(7
|
)
|
|
|
(3,960
|
)
|
|
|
2.61
|
%
|
|
|
1.24
|
%
|
|
|
1.38
|
%
|
Net CLO contractual interest
|
|
$
|
10,254
|
|
|
$
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loss on Repurchase, Reissuance, or Early Retirement of Debt
Loss on repurchase, reissuance, or early retirement of debt decreased from $5.3 million for the nine months ended September 30, 2017, to $2.8 million for the same period in 2018. The decrease in the loss is related to the liquidation of CLO II during the nine months ended September 30, 2017, partially offset by the refinancing of CLO III during the nine months ended September 30, 018.
Provision for Loan Losses
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
CLO related provision
|
|
$
|
(3,861
|
)
|
|
$
|
(2,159
|
)
|
Non-CLO related provision
|
|
|
(338
|
)
|
|
|
(1,329
|
)
|
Provision for Loan Losses
|
|
|
(4,199
|
)
|
|
|
(3,488
|
)
|
|
|
|
|
|
|
|
|
|
Less: General reserves related to CLO II, CLO III, CLO IV, CLO V, CLO V warehouse, and non-controlling interest
|
|
|
2,799
|
|
|
|
1,073
|
|
Segment provision for loan losses
|
|
$
|
(1,400
|
)
|
|
$
|
(2,415
|
)
|
Provision for loan losses increased $0.7 million, from a
provision of $3.5 million for the nine months ended September 30, 2017 to a provision of $4.2million for the same period in 2018. The increase in the provision for loan losses is attributable to the larger average CLO loan balance outstanding for the nine months ended Septemb
er 30, 2018 than September 30, 2017. As a percent of net revenues after provision for loan losses, the provision for loan losses was negative 4.0%
and negative 4.4%
for the nine months ended September 30, 2018 and 2017, respectively.
Total segment provision for loan losses decreased from a provision of $2.4 million for the nine months ended September 30, 2017 to a provision of $1.4 million for the nine months ended September 30, 2018.
Total segment provision for loan losses is a non-GAAP financial measure that aggregates our segment reported provision for loan losses across each segment. Our total segment provision for loan losses in 2018 and 2017 was solely recognized in our Investment Income segment. As a percent of total segment adjusted net revenues, segment provision for loan losses was negative 1.3% and negative 2.7% for the nine months ended September 30, 2018 and 2017, respectively.
Expenses
Non-Interest Expenses
Compensation and Benefits
Compensation and benefits, which includes employee payroll, taxes and benefits, performance-based cash bonus and commissions, as well as equity-based compensation to our employees and managing directors, increased $7.1 million, or
10.2%
, from $69.0 million for the nine months ended September 30, 2017 to $76.1 million for the nine months ended September 30, 2018.
Employee payroll, taxes and benefits, and consultant fees were $33.0 million and $34.4 million for the nine months ended September 30, 2018 and
2017, respectively. Performance-based bonus and commission increased $8.4 million from $32.2 million for the nine months ended September 30, 2017 to $40.6 million for the nine months ended September 30, 2018.
Equity-based compensation was $2.5 million and $2.2 million for the nine months ended September 30, 2018 and 2017, respectively.
Compensation and benefits as a percentage of revenues decreased from
86.8%
of total net revenues after provision for loan losses for the nine months ended September 30, 2017 to
72.6%
for the nine months ended September 30, 2018.
Our segment reported compensation and benefits recognizes 100% of the cost of deferred compensation, including non-cash share-based compensation expense, in the period for which such compensation was awarded, instead of recognizing such cost over the vesting period as
required under GAAP, in order to match compensation expense with the actual period upon which the compensation was based. The segment reported compensation and benefits increased $8.4 million from $66.4 million for the nine months ended September 30, 2017 to $74.8 million for the nine months ended September 30, 2018. As a percent of total segment net revenues, compensation and benefits were 69.0% and 74.5% for the nine months ended September 30, 2018 and 2017, respectively.
Administration
Administration expense was $6.0 million for the nine months ended September 30, 2017 and $7.2 million for the same period in 2018. As a percentage of total net revenues after provision for loan losses, administration expense decreased from
7.5%
for the nine months ended September 30
, 2017 to
6.9%
for the same period in 2018.
Brokerage, Clearing and Exchange Fees
Brokerage, clearing and exchange fees were $2.3 million for the nine months ended September 30, 2017 and $2.4 million for the nine months ended September 30, 2018. As a percentage of total net revenues after provision for loan losses, our brokerage, clearing and exchange fees decreased from
2.9%
for the nine months ended September 30, 2017 to
2.3%
for the same period in 2018.
Travel and Business Development
Travel and business development expenses increased $0.5 million, from $2.7 million for the nine months ended September 30, 2017 to $3.2
million for the nine months ended September 30, 2018. As a percentage of total net revenues after provision for loan losses, travel and business development expense was
3.1%
and
3.4%
for the nine months ended September 30, 2018 and 2017, respectively.
Managed deal expenses
Managed deal expenses were $4.5 million and zero for the nine months ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, managed deal expenses increased from zero percent for the nine months ended September 30, 2017 to
4.3%
for the same period in 2018. T
he increase is related to a gross up of expenses as a result of the Company's adoption of ASC 606. See Note 3 to the Consolidated Financial Statements for additional details on the new revenue standard and accounts affected by adoption.
Communications and Technology
Communications and technology expenses were $3.1 million
and $3.2 million for the nine months ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, communications and technology expense decreased from
4.0%
for the nine months ended September 30, 2017 to
3.0%
for the same period in 2018.
Occupancy
Occupancy expenses were $3.3 million for the nine months ended September 30, 2017 and $3.4 million for the nine months ended September 30, 2018. As a percentage of total net revenues after provision for loan losses, occupancy expense decreased from
4.2%
for the nine months ended September 30, 2017 to
3.3%
for the same period in 2018.
Professional Fees
Professional fees were $4.3 million and $3.1 million
for the nine months ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, professional fees increased from
3.9%
for the nine months ended September 30, 2017 to
4.1%
for the same period in 2018.
Depreciation
Depreciation expenses were $0.8 million and $0.9 million for the nine months ended September 30, 2018 and 2017. As a percentage of total net revenues after provision for loan losses, depreciation decreased from
1.1%
for the nine months ended September 30, 2017 to
0.8%
for the same period in 2018.
Ot
her Expenses
Other expenses
were $1.5 million and $2.0 million for the nine months ended September 30, 2018 and 2017, respectively. As a percentage of total net revenues after provision for loan losses, other expenses decreased from
2.5%
for the nine months ended September 30, 2017 to
1.5%
for the same period in 2018.
Net Income Attributable to Non-controlling Interest
Net income attributable to non-controlling interest decreased from net income of $1.7 million for the nine months ended September 30, 2017 to net income of $0.1 million for the nine months ended September 30
, 2018. Non-controlling interest for the nine months ended September 30, 2017 includes the interest of third parties in CLO I, CLO II, CLO III, and HCAP Advisors. Non-controlling interest for the nine months ended September 30, 2018 includes the interest of third parties in CLO III, HCAP Advisors, and HCS Strategic Investments LLC.
Provision for Income Taxes
Income tax benefit was $0.1 million for the nine months ended September 30, 2018 and $0.2 million for the nine months ended September 30, 2017.
For the purposes of calculating operating net income, a combined federal and state tax rate of 26% is assumed for our taxable direct subsidiaries, adjusted for a cap on allowable interest expense deduction due to recent tax reform, while a rate of 0% is applied to our direct subsidiary, which is a “pass-through entity” for tax purposes.
Segment income tax was an expense of $0.6 million and a benefit of $0.2 million for the nine months ended September 30, 2018 and 2017, respectively.
The decrease in the income tax benefit was mainly due to
the increase in book income earned by taxable direct subsidiaries and a change in the estimated effective tax rate for the year.
U.S. federal corporate income tax reform included a broad range of proposals affecting businesses, including corporate tax rates, business deductions and international tax provisions. The reduction in the federal corporate tax rate required a revaluation of our deferred tax assets at the corporate entity level. International tax provisions, including a shift to a territorial system, did not impact JMP Group LLC’s investment in foreign corporations, as the Company has historically included accumulated earnings and profits from controlled foreign corporations.
Financial Condition, Liquidity and Capital Resources
In the section that follows, we discuss the significant changes in the components of our balance sheet, cash flows, and capital
resources and liquidity for the nine months ended September 30, 2018 to demonstrate where our capital is invested and the financial condition of the Company.
Overview
As of
September 30, 2018, we had net liquid assets
of $60.5
million consisting of cash and cash equivalents, proceeds from short sales on deposit, receivable from clearing broker, marketable securities owned, and general partner investments in hedge funds managed by HCS, net of marketable securities sold but not yet purchased, accrued compensation, deferred compensation paid in January 2018, and non-controlling interest. We have satisfied our capital and liquidity requirements primarily through the issuance of the Senior Notes and internally generated cash from operations. Most of our financial instruments, other than loans collateralizing ASB issued, loans held for investment, and ABS
issued, are recorded at fair value or amounts that approximate fair value.
Liquidity Considerations Related to
CLOs
Our maximum exposure to loss of capital on the CLOs is the $13.3 million investment related to CLO III, $36.8 million investment in CLO IV and $28.7 million in CLO V as of September 30, 2018, plus our portion of the earnings retained in the CLOs since the inception dates. However, for U.S. federal tax p
urposes, the CLOs are treated as disregarded entities such that the taxable income earned in the CLO is taxable to us. If the CLOs are in violation of certain coverage tests, mainly any of their over-collateralization ratios, residual cash flows otherwise payable to us as owners of the subordinated notes would be required to be used to buy additional collateral or to repay indebtedness senior to us in the securitization. This could require us to pay income tax on earnings prior to the residual cash flow distributions to us.
The CLOs must comply with certain asset coverage tests, such as tests that restrict the amount of discounted obligations and obligations rated “CCC” or lower it can hold. Defaulted obligations, discounted assets and assets rated “CCC” or lower in excess of applicable limits in the CLOs investment criteria are not given full par credit for purposes of calculation of the CLO over-collateralization (“OC”) tests. If any of the CLOs were to violate
any of the secured note OC tests, we would be required to pay down the most senior notes with the residual cash flows until the violation was cured. In the most extreme case, if a CLO were in violation of the most senior OC test, the Class A note holders would have the ability to declare an event of default and cause an acceleration of all principal and interest outstanding on the notes. The CLOs were in compliance as of September 30, 2018 and December 31, 2017.
For financial reporting purposes, the loans and
ABS of the CLOs are consolidated on our balance sheet. The loans are reported at their cost adjusted
for credit reserves, purchase discounts, and allowance for loan losses. The ABS
are recorded net of liquidity discounts and original issue discounts. At September 30, 2018, we had $1,164 million of loans collateralizing asset-backed securities, net, $44.8 million of restricted cash and $2.8 million of interest receivable funded by $1,114.5 million of asset-backed securities issued, net, and interest payable of $9.5 million. These assets and liabilities represented 89.0% of total assets and 89.1% of total liabilities, respectively, reported on our Consolidated Statement o
f Financial Condition at September 30, 2018.
The tables below summarize the loans held by
the CLOs group
ed by range of outstanding balance, Moody’s Investors Services, Inc. rating category and industry as of September 30, 2018.
(Dollars in thousands)
|
|
As of September 30, 2018
|
|
Range of Outstanding Balance
|
|
Number of Loans
|
|
Maturity Date
|
|
Total Principal
|
|
$0 - $500
|
|
|
175
|
|
3/3020 - 12/2026
|
|
$
|
75,302
|
|
$500 - $2,000
|
|
|
595
|
|
12/2018 - 8/2026
|
|
|
758,365
|
|
$2,000 - $5,000
|
|
|
94
|
|
9/2019 - 4/2026
|
|
|
240,597
|
|
$5,000 - $10,000
|
|
|
0
|
|
|
|
|
-
|
|
Total
|
|
|
864
|
|
|
|
$
|
1,074,264
|
|
(Dollars in thousands)
|
|
As of September 30, 2018
|
|
Industry
|
|
Number of Loans
|
|
|
Outstanding Balance
|
|
|
%
of Outstanding Balance
|
|
Aerospace & Defense
|
|
|
25
|
|
|
$
|
37,296
|
|
|
|
3.5
|
%
|
Automotive
|
|
|
34
|
|
|
|
39,622
|
|
|
|
3.7
|
%
|
Banking, Finance, Insurance & Real Estate
|
|
|
59
|
|
|
|
68,913
|
|
|
|
6.4
|
%
|
Beverage, Food & Tobacco
|
|
|
38
|
|
|
|
51,655
|
|
|
|
4.8
|
%
|
Capital Equipment
|
|
|
32
|
|
|
|
31,553
|
|
|
|
2.9
|
%
|
Chemicals, Plastics & Rubber
|
|
|
29
|
|
|
|
25,937
|
|
|
|
2.4
|
%
|
Construction & Building
|
|
|
25
|
|
|
|
27,439
|
|
|
|
2.6
|
%
|
Consumer Goods: Durable
|
|
|
20
|
|
|
|
24,984
|
|
|
|
2.3
|
%
|
Consumer Goods: Non-durable
|
|
|
36
|
|
|
|
49,442
|
|
|
|
4.6
|
%
|
Containers, Packaging & Glass
|
|
|
26
|
|
|
|
27,905
|
|
|
|
2.6
|
%
|
Energy: Electricity
|
|
|
8
|
|
|
|
9,827
|
|
|
|
0.9
|
%
|
Energy: Oil & Gas
|
|
|
11
|
|
|
|
13,921
|
|
|
|
1.3
|
%
|
Environmental Industries
|
|
|
13
|
|
|
|
15,341
|
|
|
|
1.4
|
%
|
Forest Products & Paper
|
|
|
3
|
|
|
|
2,220
|
|
|
|
0.2
|
%
|
Healthcare & Pharmaceuticals
|
|
|
58
|
|
|
|
73,061
|
|
|
|
6.8
|
%
|
High Tech Industries
|
|
|
66
|
|
|
|
86,763
|
|
|
|
8.1
|
%
|
Hotel, Gaming & Leisure
|
|
|
51
|
|
|
|
55,411
|
|
|
|
5.2
|
%
|
Media: Broadcasting & Subscription
|
|
|
19
|
|
|
|
25,910
|
|
|
|
2.4
|
%
|
Media: Diversified & Production
|
|
|
15
|
|
|
|
18,207
|
|
|
|
1.7
|
%
|
Media: Advertising, Printing, Publishing
|
|
|
14
|
|
|
|
19,223
|
|
|
|
1.8
|
%
|
Metals & Mining
|
|
|
15
|
|
|
|
13,044
|
|
|
|
1.2
|
%
|
Retail
|
|
|
48
|
|
|
|
71,467
|
|
|
|
6.7
|
%
|
Services: Business
|
|
|
87
|
|
|
|
116,693
|
|
|
|
10.9
|
%
|
Services: Consumer
|
|
|
50
|
|
|
|
67,873
|
|
|
|
6.3
|
%
|
Telecommunications
|
|
|
27
|
|
|
|
34,681
|
|
|
|
3.2
|
%
|
Transportation: Cargo
|
|
|
21
|
|
|
|
26,188
|
|
|
|
2.4
|
%
|
Transportation: Consumer
|
|
|
21
|
|
|
|
22,822
|
|
|
|
2.1
|
%
|
Utilities: Electric
|
|
|
1
|
|
|
|
236
|
|
|
|
0.0
|
%
|
Wholesale
|
|
|
12
|
|
|
|
16,630
|
|
|
|
1.5
|
%
|
|
|
|
864
|
|
|
$
|
1,074,264
|
|
|
|
100.0
|
%
|
(Dollars in thousands)
|
|
As of September 30, 2018
|
|
Moody's Rating Category
|
|
Number of
Loans
|
|
|
Outstanding
Balance
|
|
|
% of Outstanding
Balance
|
|
Baa3
|
|
|
6
|
|
|
$
|
7,421
|
|
|
|
0.7
|
%
|
Ba1
|
|
|
34
|
|
|
|
41,355
|
|
|
|
3.8
|
%
|
Ba2
|
|
|
67
|
|
|
|
67,939
|
|
|
|
6.3
|
%
|
Ba3
|
|
|
98
|
|
|
|
116,209
|
|
|
|
10.8
|
%
|
B1
|
|
|
140
|
|
|
|
170,229
|
|
|
|
15.8
|
%
|
B2
|
|
|
325
|
|
|
|
423,313
|
|
|
|
39.4
|
%
|
B3
|
|
|
165
|
|
|
|
200,855
|
|
|
|
18.7
|
%
|
Caa1
|
|
|
25
|
|
|
|
40,824
|
|
|
|
3.8
|
%
|
Caa2
|
|
|
2
|
|
|
|
4,163
|
|
|
|
0.4
|
%
|
Ca
|
|
|
2
|
|
|
|
1,956
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
864
|
|
|
$
|
1,074,264
|
|
|
|
100.0
|
%
|
Other Liquidity Considerations
As of September 30, 2018, our indebtedness consists of our Senior Notes and notes payable. We have no outstanding balances on our revolving lines of credit with City National Bank (“
CNB”) held at JMP Securities or JMP Holdings.
In January 2013, we raised approximately $46.0 million from the issuance of 8.00% Senior Notes (“2013 Senior Notes”). In January 2014, we raised approximately $48.3 million from the issuance of 7.25% Senior Notes (“2014 Senior Notes”), which were fully redeemed on December 28, 2017. In November 2017, we raised approximately $50.0 million from the issuance of 7.25% Senior Notes (“2017 Senior Notes” and, together with the 2013 Senior Notes, the “Senior Notes”). The 2013 Senior Notes will mature on January 15, 2023 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after January 15, 2016, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2013 Senior Notes bear interest at a rate of 8.00% per year, payable quarterly on January 15, April 15, July 15 and October 15 of each year. The 2017 Senior Notes will mature on November 15, 2027 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after November 28, 2020, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2017 Senior Notes bear interest at a rate of 7.25% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year.
The Company redeemed $10.0 million of the issued and outstanding 2013 Senior Notes on July 31, 2018 The Company recorded a loss of $0.2 million related to the early retirement of the 2013 Senior Notes.
In connection with the Reorganization Transaction, pursuant to which JMP Group Inc. became a wholly-owned subsidiary of JMP Group LLC, we entered into a Third Supplemental Indenture, dated as of October 15, 2014 (the “Third Supplemental Indenture”), among JMP Group Inc., JMP Group LLC and JMP Investment Holdings LLC, as guarantors (the “Guarantors”), and U.S. Bank National Association, as trustee. The Third Supplemental Indenture became effective on January 1, 2015. Under the Third Supplemental Indenture, the Guarantors have jointly and severally provided a full and unconditional guarantee of the due and punctual payment of the principal and interest on the Senior Notes and the due and punctual payment or performance of all other obligations of JMP Group Inc. under the Indenture, dated as of January 24, 2013, between JMP Group Inc. and the Trustee, as supplemented by a First Supplemental Indenture, dated as of January 25, 2013, a Second Supplemental Indenture, dated as of January 29, 2014, a Third Supplemental Indenture, dated as of October 15, 2014, and the Fourth Supplemental Indenture, dated as of November 28, 2017.
The Company
’s Credit Agreement (the “Credit Agreement”), dated as of August 3, 2006, was entered into by and between JMP Holding LLC and City National Bank (“CNB”), and was subsequently amended.
The Credit Agreement and subsequent amendments provide a $25.0 million line of credit with a revolving period through June 4, 2019. On such date, any outstanding amounts convert to a term loan. The term loan will be repaid in quarterly installments of 3.75% of funded debt for the first two years, 5.00% of funded debt for the next two years, and the remainder due at maturity. Proceeds for this line of credit will be used to make financial investments, for working capital purposes, for general corporate purposes, as well as a $5.0 million sublimit to issue letters of credit. The Company had no outstanding balance on this line of credit
as of September 30, 2018 and December 31, 2017.
The Credit Agreement for the term loan provides that the proceeds of the CNB Loans are subject to the following restrictions: (i) the
initial term loan and up to $5.0 million of the revolving line of credit loans may not be used for any purpose other than to fund certain permitted investments and acquisitions and to fund JMP Holding LLC’s working capital needs in the ordinary course of its business; (ii) all other proceeds of the revolving line of credit may not be used for any purpose other than to make investments in HCS and by HCS to make investments in loans that are made to persons that are not affiliates of borrower; and (iii) the term loan may not be used for any purpose other than to make equity investments in CLOs and by CLOs to make certain permitted investments in collateralized loan obligations.
The Credit Agreement includes a minimum fixed charge applicable to us and our subsidiaries, a minimum net worth covenant applicable to us and our subsidiaries and a minimum liquidity covenant applicable to JMP Holding LLC and its subsidiaries. As of
September 30, 2018, we were in compliance with all of these financial covenants. The Credit Agreement also includes an event of default for a “change of control” that tests, in part, the composition of our ownership and an event of default if two or more of the members of the Company’s Executive Committee fail to be involved actively on an ongoing basis in the management of JMP Holding LLC or any of its subsidiaries.
Separately, under a Revolving Note and Cash Subordination Agreement, JMP Securities holds a $20.0 million revolving line of credit with CNB to be used for regulatory capital purposes during its securities underwriting activities. The unused portion of the line bears interest at the rate of 0.25% per annum, paid monthly. On June 6, 2018, JMP Securities entered into an amendment to its Credit Agreement (the “Amendment”). Pursuant to this Amendment, the $20.0 million line of credit was renewed for one year. On June 6, 2019, any existing outstanding amount will convert to a term loan maturing the following year. The remaining terms of this line of credit are consistent with those of the existing line of credit.
There was no borrowing on this line of credit as of September 30, 2018 and December 31, 2017.
The Credit Agreement contains financial and other covenants, including, but not limited to, limitations on debt, liens and investments, as well as the
maintenance of certain financial covenants. A violation of any one of these covenants could result in a default under the Credit Agreement, which would permit CNB to terminate the Company’s note and require the immediate repayment of any outstanding principal and interest. At both September 30, 2018 and December 31, 2017, the Company was in compliance with the loan covenants.
On July 31, 2017, the Company established a $200.0 million revolving credit facility with BNP Paribas to finance the acquisition of a portfolio of assets, including certain debt obligations. The Company subsequently entered into amendments to the credit facility and as of June 21, 2018, the credit facility was increased to $340.0 million. On July 26, 2018, the credit facility was fully repaid using proceeds from the securitization of CLO V. The balance of the facility was zero as of September 30, 2018 and $61.3 million as of December 31, 2017.
On February 28, 2018, the Company, entered into a Repurchase Agreement with BNP Paribas to finance the acquisition of asset-backed securities issued by CLO III in connection with risk retention requirements. During the second quarter of 2018 the Company fully repaid the outstanding balance and sold the assets collateralizing the agreement. As of September 30, 2018, there was no balance outstanding in connection with the Repurchase Agreement.
The timing of bonus compensation payments to our employees may significantly affect our cash position and liquidity from period to period. While our employees and managing directors are generally paid semi-monthly during the year, bonus compensation, which makes up a larger
portion of total compensation, is generally paid once a year during the first two months of the following year. In the first two months of 2018, we paid out $37.2 million of cash bonuses for 2017, excluding employer payroll tax expense.
The Company currently intends to continue to declare monthly cash distributions on all outstanding shares
. The table below represents cash distributions made for the three months ended September 30, 2018.
Date
|
Record
|
Date
|
|
Per Share
|
|
Declared
|
Date
|
Paid
|
|
Amount
|
|
July 18, 2018
|
July 31, 2018
|
August 15, 2018
|
|
$
|
0.030
|
|
July 18, 2018
|
August 31, 2018
|
September 14, 2018
|
|
$
|
0.030
|
|
July 18, 2018
|
September 28 2018
|
October 15, 2018
|
|
$
|
0.030
|
|
During the three mon
ths ended September 30, 2018, the Company repurchased 146,003 of the Company
’s shares at an average price of $5.34 per share for an aggregate purchase price of $0.8 million on the open market.
We had total restricted cash of
$
48.6 million comprised primarily of $44.8 million of restricted cash related to the CLOs as of September 30, 2018. This balance was comprised of $16.0 million in interest received from loans in the CLOs, and $28.8 million in principal cash. The interest and fees will be restricted until the next payment date to note holders of the CLOs. The principal restricted cash will be used to buy additional loans or pay down the senior debt in the CLOs.
Because of the nature of our investment banking and sales and trading businesses, liquidity is important to us. Accordingly, we regularly monitor our liquidity position, including our cash and net capital positions. We believe that our available liquidity and current level of equity capital, combined with the funds anticipated to be provided by our operating activities, will be
adequate to meet our liquidity and regulatory capital requirements for at least the next twelve months. If circumstances required it, we could improve our liquidity position by discontinuing repurchases of the Company’s common shares, halting cash distributions on our common shares and reducing cash bonus compensation paid.
JMP Securities, our wholly-owned subsidiary and a registered securities broker-dealer, is subject to the SEC
’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. JMP Securities had net capital of $28.3 million and $37.3 million, which were $27.0 million and $35.9 million in excess of the required net capital of $1.3 million and $1.4 million, at September 30, 2018 and December 31, 2017, respectively. JMP Securities’ ratio of aggregate indebtedness to net capital was 0.70 to 1 and 0.58 to 1 at September 30, 2018 and December 31, 2017, respectively.
A condensed
table of cash flows for the nine months ended September 30, 2018 and 2017 is presented below.
(Dollars in thousands)
|
|
Nine Months Ended September 30,
|
|
|
Change from 2017 to 2018
|
|
|
|
2018
|
|
|
2017
|
|
|
$
|
|
|
%
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
7,955
|
|
|
$
|
(12,660
|
)
|
|
$
|
20,615
|
|
|
|
162.8
|
%
|
Cash flows used in investing activities
|
|
|
(313,385
|
)
|
|
|
(52,376
|
)
|
|
|
(261,009
|
)
|
|
|
-498.3
|
%
|
Cash flows provided by (used in) financing activities
|
|
|
289,838
|
|
|
|
(98,655
|
)
|
|
|
388,493
|
|
|
|
393.8
|
%
|
Total cash flows
|
|
$
|
(15,592
|
)
|
|
$
|
(163,691
|
)
|
|
$
|
148,099
|
|
|
|
90.5
|
%
|
Cash Flows for the nine months Ended September 30, 2018
Cash decreased by $15.6 million during the nine months ended September 30, 2018, as a result of cash used in investing activities, partially offset by cash provided by operating and financing activities.
Our operating activities provided $8.0 million of cash from the net loss of $1.8 million, adjusted for the cash used by operating assets and liabilities of $0.9 million, and provided by non-cash revenue and expense items of $10.7 million. The cash used by the change in operating assets and liabilities was primarily due to a decrease in accrued compensation of $9.8 million, partially offset by a decrease in deposits and other assets of $6.9 million and an increase in interest payable of $3.9 million.
Our investing activities used $313.4 million of cash primarily due to a $307.8 million funding of loans collateralizing asset-backed securities issued and $312.1 million of funding for loans held for investment, partially offset by the $268.2 million of receipts from loans collateralizing asset-backed securities issued, $26.7 million of receipts from loans held for investments, and $13.9 million from the sale of other investments.
Our financing activities provided $289.8 million of cash primarily due to $669.1 million of proceeds from the issuance of asset-backed securities due to the refinancing of CLO III and the securitization of CLO V and $263.8 million in proceeds from draws on the CLO V warehouse facility, partially offset by the repurchase of $332.1 million of asset-backed securities issued at CLO III, $325.0 million in repayments on the CLO V warehouse facility, and $9.9 million of repayments on bonds payable.
Cash Flows for the nine months Ended September 30, 2017
Cash decreased by $163.7 million during the nine months ended September 30, 2017, as a result of cash used in operating, investing, and financing activities.
Our operating activities used $12.7 million of cash from the net loss of $12.8 million, adjusted for the cash used by operating assets and liabilities of $15.1 million, and provided by non-cash revenue and expense items of $15.2 million. The cash used by the change in operating assets and liabilities is primarily due to a $22.4 million increase in receivables, and a $7.9
million decrease in accrued compensation, partially offset by a $16.3 million increase in market securities sold but not yet purchased.
Our investing activities used $52.4 million of cash primarily due $614.4 million of funding for loans collateralizing asset-backed securities issued and $13.5 million of funding of loans held for investment, partially offset by $506.5 million of receipts from loans collateralizing asset-backed securities, $35.7 million of proceeds from loans held for sale, $25.0 million of cash provided by changes in cash collateral posted for derivative transactions, and $12.3 million of proceeds from sale of other investments.
Our financing activities used $98.7 million of cash primarily due to $503.6 million of repayments of asset-backed securities issued relating to the liquidation of CLO I and CLO II, partially offset by $408.4 million of proceeds from issuance of asset-backed securities due to the securitization of CLO IV, and $7.0 million of proceeds from the CLO V warehouse facility.
Contractual Obligations
As of
September 30, 2018, our aggregate minimum future commitment on our leases
was $22.7 mi
llion. See Note 13 of the notes to the consolidated financial statements for more information. Our remaining contractual obligations have not materially changed from those reported in our Annual Report.
Off-Balance Sheet Arrangements
The Company had unfunded commitments to lend of $1.1 million and $2.1 million as of September 30, 2018 and December 31, 2017, respectively. Had the borrower drawn on these, the Company would have been obligated to fund them. The funds for the unfunded commitments to lend and the cash collateral supporting these standby letters of credit are included in restricted cash on the Consolidated Statement of Financial Position as of September 30, 2018. The CLO-related commitments do not extend to JMP Group LLC. See Note 18 of the notes to the consolidated financial statements for more information on the financial instruments with off-balance sheet risk in connection with the CLOs.
Unfunded commitments are agreements to lend to a borrower, provided that all conditions have been met. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each borrower
’s creditworthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a borrower to a third party. The Company
’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to borrowers.
We had no other material off-balance sheet arrangements as of September 30
, 2018.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and of revenues and expenses during the reporting periods. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. The use of different estimates and assumptions could produce materially different results. For example, if factors such as those described
under the caption “Risk Factors” in our Annual Report cause actual events to differ from the assumptions we used in applying the accounting policies, our results of operations, financial condition and liquidity could be adversely affected.
On an ongoing basis, we evaluate our estimates and assumptions, particularly as they relate to accounting policies that we believe are most important to the presentation of our financial condition and results of operations. We regard an accounting estimate or assumption to be most important to the presentation of our financial condition and results of operations where:
|
•
|
the nature of the estimate
s or assumptions is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and
|
|
•
|
the impact of the estimate
s or assumptions on our financial condition or operating performance is material.
|
Using the foregoing criteria, we consider the following to be our critical accounting policies:
|
●
|
Valuation of Financial Instruments
|
|
●
|
Asset Management Investment Partnerships
|
|
●
|
L
oans
Collateralizing Asset-backed Securities
Issued
|
|
●
|
Allowance for Loan Losses
|
|
●
|
Asset-backed Securities Issued
|
|
●
|
Legal and Other Contingent Liabilities
|
Our significant accounting policies are described further in the “Critical Accounting Policies and Estimates” section and Note
2 - Summary of Significant Accounting Policies to our consolidated financial statements in our Annual Report.