Market Overview

JMP Group Reports Fourth Quarter and Fiscal Year 2017 Financial Results

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JMP Group LLC (NYSE: JMP),
an investment banking and alternative asset management firm, reported
financial results today for the quarter and full fiscal year ended
December 31, 2017.

  • The net loss attributable to JMP Group under generally accepted
    accounting principles, or GAAP, was $1.4 million, or $0.06 per diluted
    share, compared to net income of $0.8 million, or $0.04 per share, for
    the quarter ended December 31, 2016. For the year ended December 31,
    2017, the net loss was $15.9 million, or $0.74 per share, compared to
    net income of $2.9 million, or $0.13 per share, for the year ended
    December 31, 2016.
  • Total net revenues on a GAAP basis were $30.3 million and $109.9
    million for the quarter and year ended December 31, 2017,
    respectively, compared to $36.0 million and $135.0 million for the
    quarter and year ended December 31, 2016, respectively.
  • Operating net income was $3.6 million, or $0.16 per diluted share,
    compared to $2.8 million, or $0.13 per share, for the quarter ended
    December 31, 2016. For the year ended December 31, 2017, operating net
    income was $4.3 million, or $0.20 per share, compared to $10.5
    million, or $0.48 per share, for the year ended December 31, 2016. For
    more information about operating net income, including a
    reconciliation to net income attributable to JMP Group, see the
    section below titled "Non-GAAP Financial Measures."
  • Adjusted net revenues, which exclude certain non-cash items and
    non-controlling interests, were $34.2 million and $123.4 million for
    the quarter and year ended December 31, 2017, respectively, compared
    to $35.5 million and $130.2 million for the quarter and year ended
    December 31, 2016, respectively. For more information about adjusted
    net revenues, including a reconciliation to net revenues, see the
    section below titled "Non-GAAP Financial Measures."

"We had a better-than-expected fourth quarter, with operating earnings
of $0.16 per share, which, for the first time since 2016, included a
positive contribution from net corporate income of $0.03 per share,"
said Chairman and Chief Executive Officer Joe Jolson. "JMP Securities
continued to produce at near-record levels, contributing $0.12 per
share—an annualized ROE of 38%—and our asset management subsidiaries
returned to profitability, adding $0.02 per share to operating earnings.
Importantly, with net investment income of $0.09 per share at our
publicly traded partnership, we covered our quarterly cash distribution
for the first time in 2017.

"Early in 2017, our performance suffered from a depressed equity capital
markets environment and from the turnover of our first two CLOs, which
diminished asset management fee income and challenged us to redeploy a
material amount of cash that was funded with 8% long-term debt. As the
year progressed, our operating earnings improved steadily as we
reinvested our capital back into our CLO business and U.S. ECM activity
recovered. In a better environment, JMP Securities achieved impressive
market share gains and grew its ECM revenues 83% year-over-year, while
U.S. equity underwriting fees increased 27% across the industry.

"We are off to a good start in 2018, with record investment banking
revenues for the month of January. Also, we recently priced the reset of
CLO III, which we expect to close the week of February 19. We hope to
execute on a new CLO around mid-year, which would complete the
reinvestment of our capital in our credit business and would return our
asset management segment to more consistent profitability."

Segment Results of Operations

At JMP Securities, the broker-dealer segment, adjusted net revenues were
$28.5 million, an increase of 39.3% from $20.5 million for the fourth
quarter of 2016. JMP Securities' operating margin on adjusted net
revenues was 14.7%, compared to 4.3% for the fourth quarter of 2016. The
asset management segment reported adjusted net revenues of $4.9 million,
a decrease of 19.5% from $6.1 million for the fourth quarter of 2016.
Together, these two segments represent JMP Group's operating platforms.

JMP Group's principal investment activities generate net investment
income, which has historically more than covered corporate expenses and
has contributed to operating earnings through net corporate income.
However, after calling JMP Credit Advisors CLO I in December 2016 and
redeeming capital from hedge funds managed by Harvest Capital Strategies
during 2017, JMP Group operated with an unusually large investable cash
balance throughout the year, resulting in net corporate expense of $2.5
million for 2017. However, for the fourth quarter, with a portion of the
available cash redeployed in the second half of the year, the company
reported net corporate income of $0.6 million, compared to $1.5 million
for the fourth quarter of 2016.

A summary of JMP Group's operating net income per share by segment for
the quarter and year ended December 31, 2017, and for comparable prior
periods, is set forth below.

  Quarter Ended   Year Ended
($ as shown) Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Dec. 31, 2017   Dec. 31, 2016
Broker-dealer $0.12 $0.13 $0.02 $0.31 $0.05
Asset management 0.02 (0.00 ) 0.04 0.01   0.07
Operating platform EPS 0.13 0.13 0.06 0.31 0.13
Net corporate income 0.03 (0.02 ) 0.07 (0.12 ) 0.35
Operating EPS (diluted) $0.16 $0.10   $0.13 $0.20   $0.48
 

Note: Due to rounding,
numbers in columns above may not sum to totals presented.

For more information about segment reporting; adjusted net revenues,
including a reconciliation to net revenues; and operating net income,
including a reconciliation to net income, see the section below titled
"Non-GAAP Financial Measures."

Composition of Revenues

Investment Banking

Investment banking revenues were $22.5 million and $77.3 million for the
quarter and year ended December 31, 2017, respectively, compared to
$13.6 million and $55.4 million for the quarter and year ended December
31, 2016, respectively.

A summary of the company's investment banking revenues and transaction
counts for the quarter and year ended December 31, 2017, and for
comparable prior periods, is set forth below.

  Quarter Ended   Year Ended
Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Dec. 31, 2017   Dec. 31, 2016
($ in thousands) Count   Revenues Count   Revenues Count   Revenues Count   Revenues Count   Revenues

Equity and debt origination

21 $12,863 22 $15,639 15 $6,704 103 $53,355 54 $24,340

Strategic advisory and private placements

4 9,647 6 6,446 6 6,930 18 23,968 25 31,013
Total 25 $22,510 28 $22,085 21 $13,634 121 $77,323 79 $55,353

Brokerage

Net brokerage revenues were $6.0 million and $21.1 million for the
quarter and year ended December 31, 2017, respectively, compared to $6.8
million and $23.8 million for the quarter and year ended December 31,
2016, respectively.

Total capital markets revenues, which consist of net brokerage revenues
produced by the institutional equities division in addition to equity
and debt origination revenues generated by the investment banking
division, were $18.9 million and $74.5 million for the quarter and year
ended December 31, 2017, respectively, compared to $13.5 million and
$48.1 million for the quarter and year ended December 31, 2016,
respectively.

Asset Management

Asset management fees were $4.0 million, compared to $7.8 million for
the fourth quarter of 2016. For the year ended December 31, 2017, asset
management fees were $18.0 million, including $2.5 million of incentive
fees, compared to $26.8 million, including $10.5 million of incentive
fees, for the year ended December 31, 2016.

Asset management-related fee revenues reflect asset management fees, net
of non-controlling interests in HCAP Advisors, as well as certain fee
revenues reported in the company's financial statements as other income.
Asset management-related fee revenues were $4.3 million and $18.5
million for the quarter and year ended December 31, 2017, respectively,
compared to $8.4 million and $26.2 million for the quarter and year
ended December 31, 2016, respectively. For more information about asset
management-related fee revenues, see the section below titled "Non-GAAP
Financial Measures."

Client assets under management at December 31, 2017, totaled $2.0
billion, including $1.1 billion of funds managed by Harvest Capital
Strategies, JMP Asset Management and HCAP Advisors and $0.9 billion par
value of loans and cash managed by JMP Credit Advisors. Client assets
under management were $2.0 billion at September 30, 2017, and $2.2
billion at December 31, 2016. Including sponsored funds in which JMP
Group owns an economic interest, client assets under management totaled
$5.2 billion at December 31, 2017.

At December 31, 2017, private capital, including corporate credit, small
business lending, venture capital and real estate-related investments,
represented 52.2% of client assets under management, including sponsored
funds.

Principal Transactions

Principal transactions generated a net realized and unrealized loss of
$3.0 million, compared to a net realized and unrealized gain of $5.9
million for the fourth quarter of 2016. For the year ended December 31,
2017, principal transactions generated a net realized and unrealized
loss of $6.6 million, compared to a net realized and unrealized gain of
$16.2 million for the year ended December 31, 2016.

Adjusted principal transaction revenues exclude certain unrealized
mark-to-market gains or losses, including those on JMP Group's
investment in Harvest Capital Credit Corporation, as well as unrealized
losses derived from depreciation and amortization of real estate
investment properties. Adjusted principal transaction revenues were -$14
thousand and $3.2 million for the quarter and year ended December 31,
2017, respectively, compared to $6.1 million and $18.5 million for the
quarter and year ended December 31, 2016, respectively. For more
information about adjusted principal transaction revenues, including a
reconciliation to principal transaction revenues, see the section below
titled "Non-GAAP Financial Measures."

Net Interest Income

Net interest income was $2.1 million and $7.1 million for the quarter
and year ended December 31, 2017, respectively, compared to $2.3 million
and $14.0 million for the quarter and year ended December 31, 2016,
respectively. The year-over-year declines were primarily due to
materially lower average loan balances in 2017 resulting from the
liquidation of JMP Credit Advisors CLO I in February 2017.

In addition, the fourth quarter of 2017 included $0.3 million of
interest expense that will not recur. During the quarter, JMP Group
issued 7.25% senior notes due 2027 and redeemed 7.25% senior notes due
2021. The company announced the redemption of the 2021 notes on November
28, 2017, and concluded the redemption on December 28, 2017. During the
30-day period in between, the company continued to pay interest to
holders of the 2021 notes while also starting to pay interest to holders
of the 2027 notes, which were priced on November 20, 2017. The interest
paid on the 2021 notes during that period equaled $0.3 million. With the
2027 notes now outstanding and the 2021 notes now redeemed, there will
not be a quarter in the future during which JMP Group recognizes
interest expense from both securities.

Provision for Loan Losses

The net loan loss provision for the quarter was $0.9 million and was
primarily general in nature, not reflective of specific loans deemed to
be impaired.

Early Retirement of Debt

In the second quarter of 2017, JMP Credit Advisors elected to redeem the
outstanding notes issued by JMP Credit Advisors CLO II and to contribute
the loans that had been underlying that structure to a newly formed
collateralized loan obligation, JMP Credit Advisors CLO IV. The
redemption of the debt associated with JMP Credit Advisors CLO II
accelerated the amortization of remaining capitalized issuance costs of
$5.5 million.

In the fourth quarter of 2017, JMP Group redeemed 7.25% senior notes due
2021. The redemption of the notes accelerated the amortization of
remaining capitalized issuance costs of $0.8 million. Additionally,
non-recurring interest expense of $0.3 million resulted from debt
service on the 2021 notes prior to their redemption in the fourth
quarter but following the issuance of 7.25% senior notes due 2027, as
described above in the section titled "Net Interest Income."

Expenses

Compensation and Benefits

Compensation and benefits expense was $21.5 million, compared to $31.0
million for the fourth quarter of 2016. With regard to annually awarded
compensation, a concept which adjusts compensation expense related to
share-based awards and deferred compensation, compensation and benefits
expense was 64.3% of adjusted net revenues, compared to 73.2% for the
fourth quarter of 2016. Further excluding specific loan loss provisions
and compensation expense related to hedge fund incentive fees, the
compensation ratio was 63.8%, compared to 69.5% for the fourth quarter
of 2016.

For the year ended December 31, 2017, compensation and benefits expense
was $90.6 million, compared to $101.2 million for the year ended
December 31, 2016. With regard to annually awarded compensation,
compensation and benefits expense was 71.7% of adjusted net revenues,
compared to 71.5% for the year ended December 31, 2016. Further
excluding specific loan loss provisions and compensation expense related
to hedge fund incentive fees, the compensation ratio was 69.8%, compared
to 68.9% for the year ended December 31, 2016.

For more information about compensation ratios, see the section below
titled "Non-GAAP Financial Measures."

Non-Compensation Expense

Non-compensation expense was $7.9 million and $31.4 million for the
quarter and year ended December 31, 2017, respectively, compared to $7.6
million and $30.9 million for the quarter and year ended December 31,
2016, respectively.

Share Repurchase Activity

During the quarter ended December 31, 2017, JMP Group repurchased 78,749
shares of its common stock at an aggregate cost of $0.4 million, or
$5.38 per share. As of January 1, 2018, 1,000,000 shares were eligible
for repurchase during the upcoming year under the company's most recent
repurchase authorization, which was announced on December 13, 2017.

Personnel

At December 31, 2017, the company had 230 full-time employees, compared
to 230 at September 30, 2017, and 228 at December 31, 2016.

Non-GAAP Financial Measures

In addition to the GAAP financial results presented in this press
release, JMP Group presents the non-GAAP financial measures discussed
below. These non-GAAP measures are provided to enhance investors'
overall understanding of the company's current financial performance.
Furthermore, company management believes that this presentation enables
a more meaningful comparison of JMP Group's financial performance in
various periods. However, the non-GAAP financial results presented
should not be considered a substitute for results that are presented in
a manner consistent with GAAP. A limitation of the non-GAAP financial
measures presented is that the adjustments concern gains, losses or
expenses that JMP Group generally expects to continue to recognize. The
adjustment of these non-GAAP items should not be construed as an
inference that these gains or expenses are unusual, infrequent or
non-recurring. Therefore, both GAAP measures of JMP Group's financial
performance and the respective non-GAAP measures should be considered
together. The non-GAAP measures presented herein may not be comparable
to similarly titled measures presented by other companies.

Adjusted Net Revenue

Adjusted net revenue is a non-GAAP financial measure that (i) reverses
the general loan loss provision taken with regard to certain CLOs, (ii)
excludes the impact of the early retirement of debt issued by JMP Group
and a CLO, (iii) reverses net unrealized mark-to-market gains or losses
on investments related to deferred compensation, (iv) reverses
unrealized losses derived from depreciation and amortization of real
estate investment properties, (v) reverses net unrealized gains or
losses on strategic equity investments and warrants, and (vi) excludes
non-controlling interests in various sources of revenue that are
consolidated according to GAAP. In particular, adjusted net revenue
adjusts for:

  • the non-specific loss provision recorded with regard to loans held by
    JMP Credit Advisors CLO II (while outstanding), JMP Credit Advisors
    CLO III, JMP Credit Advisors CLO IV and JMP Credit Advisors CLO V and
    to loans held for investment, which is required by GAAP;
  • one-time expenses associated with the redemption of senior notes due
    2021 and of debt underlying JMP Credit Advisors CLO II and the
    resulting acceleration of the amortization of remaining capitalized
    issuance costs for each;
  • unrealized mark-to-market gains or losses on investments in the
    company's hedge funds that are made on behalf of employees who opt for
    such investments under the terms of their deferred compensation
    agreements; any gains or losses will accrue to the individual employee
    once the deferred compensation is released to that individual;
  • depreciation and amortization expense related to commercial real
    estate investments that is recognized by JMP Group as a result of
    equity method accounting;
  • unrealized mark-to-market gains or losses on the company's strategic
    equity investments as well as certain warrant positions; and
  • non-controlling interests in revenues generated by consolidated
    entities, including HCAP Advisors and CLOs managed by JMP Credit
    Advisors.

A reconciliation of JMP Group's net revenues to its adjusted net
revenues for the quarter and year ended December 31, 2017, and for
comparable prior periods, is set forth below.

  Quarter Ended   Year Ended
(in thousands) Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Dec. 31, 2017   Dec. 31, 2016
 
Revenues:
Non-interest revenues $29,875 $30,308 $34,336 $113,231 $122,569
Net interest income 2,095 2,089 2,294 7,109 13,994
Early retirement of debt (775 ) - - (6,107 ) -
Provision for loan losses (875 ) (368 ) (606 ) (4,363 ) (1,586 )
Total net revenues 30,320 32,029 36,024 109,870 134,977
 
Add back/(subtract):

General loan loss (reversal)/provision – collateralized loan
obligations

680 (136 ) 349 1,377 240
Early retirement of debt 1,067 - - 6,499 -

Unrealized mark-to-market (gain)/loss – deferred compensation

(6 ) (122 ) (276 ) 31 (382 )

Unrealized loss – real estate-related depreciation and amortization

1,173 2,571 1,718 7,645 4,241

Unrealized mark-to-market loss/(gain) – strategic equity
investments and warrants

1,816 (191 ) (1,211 ) 2,113 (1,540 )
Non-controlling interests (826 ) (1,202 ) (1,115 ) (4,102 ) (7,379 )
 
Adjusted net revenues $34,224   $32,949   $35,489   $123,433   $130,157  

Company management has utilized adjusted net revenue, adjusted in the
manner described above, as an additional device to aid in understanding
and analyzing JMP Group's financial results for the periods presented.
Management believes that adjusting net revenue in these ways is useful
in that it allows for a better evaluation of the performance of JMP
Group's ongoing business and facilitates a meaningful comparison of the
company's results in a given period to those in prior and future periods.

Asset Management-Related Fee Revenues

Asset management-related fee revenue is a non-GAAP financial measure
that (i) excludes the non-controlling interest in asset management
subsidiary HCAP Advisors and in certain collateralized loan obligations
and (ii) includes certain fee revenues (in particular, asset management
fundraising fees generated by JMP Securities, loan fees, and revenues
from fee-sharing arrangements with other asset managers) that are
reported in JMP Group's financial statements as other income.

A statement of JMP Group's asset management-related fee revenues for the
quarter and year ended December 31, 2017, and for comparable prior
periods, is set forth below.

  Quarter Ended   Year Ended
(in thousands) Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Dec. 31, 2017   Dec. 31, 2016
 
Base management fees:

Revenues reported as asset management fees

$3,463 $3,941 $3,851 $15,548 $16,285
Non-controlling interests (122 ) (152 ) (337 ) (782 ) (1,418 )
Total base management fees 3,341   3,789   3,514   14,766   14,867  
 
Incentive fees:

Revenues reported as asset management fees

508 73 3,983 2,501 10,506
Non-controlling interests -   -   43   (128 ) (582 )
Total incentive fees 508   73   4,026   2,373   9,924  
 
Other income:
Total fundraising and other fees 430   282   872   1,352   1,408  
 

Asset management-related fee revenues

$4,279   $4,144   $8,412   $18,491   $26,199  

Company management has utilized asset management-related fee revenue as
a means of assessing the performance of JMP Group's combined asset
management activities, including its fundraising and other services for
third parties. Management believes that asset management-related fee
revenues, as presented above, provide useful information by indicating
the relative contributions of base management fees and
performance-related incentive fees, thus facilitating a comparison of
those fees in a given period to those in prior and future periods.
Management also believes that asset management-related fee revenue is a
more meaningful measure than standalone asset management fees as
reported, because asset management-related fee revenues represent the
combined impact of JMP Group's various asset management activities on
the company's total net revenues.

Adjusted Principal Transaction Revenues

Adjusted principal transaction revenue is a non-GAAP financial measure
that reverses (i) net unrealized gains and losses related to deferred
compensation, (ii) unrealized losses derived from depreciation and
amortization of real estate investment properties, and (iii) net
unrealized gains and losses on strategic equity investments and
warrants, in keeping with the calculation of adjusted net revenue, as
detailed above.

A summary of the company's principal transaction revenues for the
quarter and year ended December 31, 2017, and for comparable prior
periods, is set forth below.

  Quarter Ended   Year Ended
(in thousands) Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Dec. 31, 2017   Dec. 31, 2016
 
Hedge fund investments $832 $687 $200 $2,001 $272

Investment in Harvest Capital Credit Corporation

(1,816 ) 191 1,211 (2,113 ) $1,525
Other principal investments (2,013 ) (2,269 ) 4,446   (6,493 ) 14,384  
Total principal transaction revenues (2,997 ) (1,391 ) 5,857   (6,605 ) 16,181  
 
Add back/(subtract):

Unrealized mark-to-market (gain)/loss – deferred compensation

(6 ) (122 ) (276 ) 31 (382 )

Unrealized loss – real estate-related depreciation and amortization

1,173 2,571 1,718 7,645 4,241

Unrealized mark-to-market (gain)/loss – strategic equity
investments and warrants

1,816   (191 ) (1,211 ) 2,113   (1,540 )
Total operating adjustments 2,983   2,258   231   9,789   2,319  
 

Total adjusted principal transaction revenues

($14 ) $867   $6,088   $3,184   $18,500  

Company management utilizes adjusted principal transaction revenue
because it is a component of adjusted net revenue. The exclusion of
certain elements of principal transaction revenues, as presented above,
results in an adjusted measure that is included as "Principal
transactions" among JMP Group's revenues in the non-GAAP presentation of
segment results of operations that appears below. Management believes
that adjusting principal transaction revenues and total revenues in
these ways is useful in that it allows for a clearer understanding and
comparison of JMP Group's financial results for the periods presented.

Compensation Ratio

A compensation ratio expresses compensation expense as a percentage of
net revenues in a given period. As utilized by JMP Group, an adjusted
compensation ratio is a non-GAAP financial measure that employs adjusted
net revenues as the denominator in its calculation. Furthermore, this
ratio adjusts the financial impact of certain compensation-related and
transaction-related expenses that are or are not recognized under GAAP.
In particular, the adjusted compensation ratio reverses compensation
expense and unrealized mark-to-market gains or losses related to
share-based awards, deferred compensation and non-controlling interests
(so that the compensation expenses used in the numerator correspond to
the adjusted net revenues generated in the periods presented). In
addition, the company presents a further adjusted compensation ratio
that excludes any compensation related to incentive fees generated by
hedge funds, a majority of which is passed through to the funds'
investment teams if earned, as well as any specific loan loss provisions.

A statement of JMP Group's compensation ratio for the quarter and year
ended December 31, 2017, and for comparable prior periods, is set forth
below.

  Quarter Ended   Year Ended
($ in thousands) Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Dec. 31, 2017   Dec. 31, 2016
 
Compensation Ratio
 
Adjusted net revenues $34,224   $32,949   $35,489   $123,433   $130,157  
 
Compensation and benefits $21,537 $24,563 $30,960 $90,550 $101,233
Subtract/(add back):

Compensation expense – stock options and SARs

(188 ) 54 483 (334 ) 1,253

Compensation expense – RSUs

213 206 233 954 746

Compensation expense – deferred compensation

(811 ) 436 3,742 457 4,788

Unrealized mark-to-market gain/(loss) – deferred compensation

6 122 276 (31 ) 382

Compensation expense – non-controlling interest

296   263   262   1,058   1,018  
Adjusted compensation and benefits $22,021   $23,482   $25,964   $88,446   $93,046  

 

Adjusted ratio of compensation expense to revenues

64.3 % 71.3 % 73.2 % 71.7 % 71.5 %
 
Compensation Ratio Excluding Incentive Fees and Loss Provision
 
Adjusted net revenues $34,224 $32,949 $35,489 $123,433 $130,157
Subtract/(add back):

Compensation expense – hedge fund incentive fees

270 61 4,055 1,802 9,163
Specific loan loss provision (128 ) (593 ) (81 ) (2,543 ) (876 )

Adjusted net revenues, excluding hedge fund incentive fees and
specific loss provision

$34,082   $33,481   $31,515   $124,174   $121,870  
 
Adjusted compensation and benefits $22,021 $23,482 $25,964 $88,446 $93,046
Subtract:

Compensation expense – hedge fund incentive fees

270   61   4,055   1,802   9,163  

Adjusted compensation and benefits, excluding hedge fund incentive
fees

$21,751   $23,421   $21,909   $86,644   $83,883  
 

Adjusted ratio of compensation expense to revenues, excluding
hedge fund incentive fees and specific loss provision

63.8 % 70.0 % 69.5 % 69.8 % 68.8 %

Company management has utilized compensation ratios, adjusted in the
manners described above, to assess JMP Group's personnel expenses as
they relate to its revenues for the periods presented. Management
believes that adjusted compensation ratios provide useful information by
including or excluding certain expenses as a means of representing the
company's ongoing personnel costs resulting from its core business
activities. Management also believes that compensation ratios are useful
measures because they allow and facilitate meaningful comparisons of the
company's personnel expenses in a given period to those in prior and
future periods.

Operating Net Income

Operating net income is a non-GAAP financial measure that (i) reverses
compensation expense related to share-based awards and deferred
compensation, (ii) reverses the general loan loss provision taken with
regard to certain CLOs, (iii) excludes the impact of the early
retirement of debt issued by JMP Group and a CLO, (iv) excludes
transaction costs related to JMP Credit Advisors CLO II, JMP Credit
Advisors CLO III and a total return swap, (v) excludes amortization
expense related to JMP Credit Advisors CLO III, (vi) reverses unrealized
losses derived from depreciation and amortization of real estate
investment properties, (vii) reverses net unrealized gains and losses on
strategic equity investments and warrants, and (viii) assumes an
effective tax rate. In particular, operating net income adjusts for:

  • the grant of RSUs and options;
  • net deferred compensation, which consists of (a) deferred compensation
    awarded in a given period but recognized as a GAAP expense over the
    subsequent three years, less (b) GAAP expense recognized in a given
    period but already reflected in the operating income of a prior
    period; the purpose of this adjustment is to fully reflect
    compensation awarded in a given year, notwithstanding the timing of
    GAAP expense;
  • the non-specific loss provision recorded with regard to loans held by
    JMP Credit Advisors CLO II (while outstanding), JMP Credit Advisors
    CLO III, JMP Credit Advisors CLO IV and JMP Credit Advisors CLO V and
    to loans held for investment, which is required by GAAP;
  • one-time expenses associated with the redemption of senior notes due
    2021 and of debt underlying JMP Credit Advisors CLO II and the
    resulting acceleration of the amortization of remaining capitalized
    issuance costs for each;
  • one-time transaction costs related to a restructuring of CLO
    portfolios that included the redemption of notes issued by JMP Credit
    Advisors CLO II, the refinancing of notes issued by JMP Credit
    Advisors CLO III, and the termination of a total return swap in the
    second quarter;
  • amortization expense related to an intangible asset resulting from the
    repurchase of a portion of the equity of JMP Credit Advisors CLO III;
  • depreciation and amortization expense related to commercial real
    estate investments that is recognized by JMP Group as a result of
    equity method accounting;
  • unrealized mark-to-market gains or losses on the company's strategic
    equity investments as well as certain warrant positions; and
  • a combined federal, state and local income tax rate of 38% at the
    taxable direct subsidiary of parent company JMP Group, while applying
    a tax rate of 0% to the company's other direct subsidiary, which is a
    "pass-through entity" for tax purposes.

A reconciliation of JMP Group's net income to its operating net income
for the quarter and year ended December 31, 2017, and for comparable
prior periods is set forth below.

  Quarter Ended   Year Ended
Dec. 31, 2017   Sept. 30, 2017   Dec. 31, 2016 Dec. 31, 2017   Dec. 31, 2016
 
Net (loss)/income attributable to JMP Group ($1,400 ) ($1,235 ) $789 ($15,910 ) $2,926
 
Add back/(subtract):
Income tax expense/(benefit) 1,913   1,113   (3,855 ) 1,744   (4,648 )
Income/(loss) before taxes 513 (122 ) (3,066 ) (14,166 ) (1,722 )
 
Add back/(subtract):

Compensation expense – stock options and SARs

(188 ) 54 483 (334 ) 1,253

Compensation expense – RSUs

213 206 233 954 746

Compensation expense – net deferred compensation

(811 ) 436 3,742 457 4,788

General loan loss provision/(reversal) – collateralized loan
obligations

680 (136 ) 349 1,377 240
Early retirement of debt 1,067 - - 6,499 -
Restructuring costs – CLO portfolios 15 14 - 315 -
Amortization of intangible asset – CLO III 69 69 138 276 138

Unrealized loss – real estate-related depreciation and amortization

1,173 2,571 1,718 7,645 4,241

Unrealized mark-to-market loss/(gain) – strategic equity
investments and warrants

1,816   (191 ) (1,211 ) 2,113   (1,540 )
Operating income before taxes 4,547 2,901 2,386 5,136 8,144
 
Income tax (expense)/benefit (983 ) (610 ) 452   (805 ) 2,316  
Operating net income $3,564   $2,291   $2,838   $4,331   $10,460  
 
Operating net income per share:
Basic $0.17 $0.11 $0.13 $0.20 $0.50
Diluted (1) $0.16 $0.10 $0.13 $0.20 $0.48
 
Weighted average shares outstanding:
Basic 21,568 21,525 21,071 21,579 21,105
Diluted (1) 22,017 22,058 22,018 21,980 21,765
(1)   In 2013 and the first quarter of 2014, JMP Group issued restricted
share units, or RSUs, bearing non-forfeitable distribution
equivalent rights. GAAP requires RSUs with non-forfeitable
distribution equivalent rights to be included in the diluted share
count (without applying the treasury method). Management presents a
non-GAAP diluted share count, in keeping with the presentation for
quarters not impacted by this GAAP requirement for such RSUs. The
non-GAAP diluted share count reflects the impact of such RSUs under
the treasury method, which is consistent with the calculation of the
dilutive impact of all other RSUs outstanding. On a GAAP basis, the
weighted average number of diluted shares outstanding for the
quarter and year ended December 31, 2017, was 21,567,723 and
21,579,107, respectively, equivalent to the weighted average number
of basic shares outstanding, due to the company's net loss for these
periods. Under GAAP, in a period of net loss, dilutive securities
are disregarded in the calculation of earnings per share. On a GAAP
basis, the weighted average number of diluted shares outstanding for
the quarter year ended December 31, 2016, periods in which there was
net income, was 22,024,335 and 21,841,293, respectively.

Company management has utilized operating net income on a total and per
share basis, adjusted in the manner described above, as an additional
device to aid in understanding and analyzing JMP Group's financial
results for the periods presented. Management believes that operating
net income provides useful information by excluding certain items that
may not be representative of the company's core operating results or
core business activities. Management also believes that operating net
income is a useful measure because it allows for a better evaluation of
the performance of JMP Group's ongoing business and facilitates a
meaningful comparison of the company's results in a given period to
those in prior and future periods.

Segment Reporting

In order to demonstrate the contribution to the company's results of
each of its primary businesses on a standalone basis, JMP Group presents
the operating net income generated by each segment in the tables that
follow. Management believes that this presentation enables investors to
better understand the separate but interrelated financial operations of
the company's various business lines and to more accurately assess the
contribution of each to JMP Group's aggregate results.

Total net revenues have been adjusted, in part, as detailed above in the
section titled "Adjusted Net Revenue," and the resulting presentation of
adjusted net revenues excludes (i) the general loan loss provision taken
with regard to certain CLOs, (ii) the impact of the early retirement of
debt associated with JMP Credit Advisors CLO II, (iii) unrealized
mark-to-market gains or losses on investments related to deferred
compensation, (iv) unrealized losses derived from depreciation and
amortization of real estate investment properties, (v) net unrealized
gains and losses on strategic equity investments and warrants, and (vi)
non-controlling interests in various sources of revenue that are
consolidated according to GAAP. Total non-interest expenses have been
adjusted, in part, as detailed above in the section titled "Operating
Net Income," and the resulting adjusted non-interest expense reverses
compensation expense related to share-based awards and deferred
compensation. Expenses derived from non-controlling interests in
entities that are consolidated according to GAAP have also been
reversed. For the purposes of calculating operating net income, an
effective tax rate of 38% is assumed for JMP Group's taxable subsidiary,
based on the company's best estimation of the subsidiary's average rate
of taxation over the long term.

A statement of JMP Group's operating net income on a segment basis for
the quarter ended December 31, 2017, is set forth below.

  Quarter Ended December 31, 2017
      Net    
Broker- Asset Operating Corporate Elimin- JMP
(in thousands, except per share amounts) Dealer Mgmt. Platforms Income ations Group
 
Revenues:
Investment banking $22,516 - $22,516 - ($7 ) $22,509
Brokerage 6,002 - 6,002 - - 6,002
Asset management-related fees 7 $4,923 4,930 $194 (845 ) 4,279
Principal transactions - - - (14 ) - (14 )
Gain on sale and payoff of loans - - - (251 ) - (251 )
Net dividend income - - - 370 - 370
Net interest income - - - 1,457 - 1,457
Provision for loan losses - - - (128 ) -   (128 )
Adjusted net revenues 28,525 4,923 33,448 1,628 (852 ) 34,224
 
Expenses:
Non-interest expense/(income) 24,338 4,353 28,691 1,831   (845 ) 29,677  
Operating income/(loss) before taxes 4,187 570 4,757 (203 ) (7 ) 4,547
 
Income tax expense/(benefit) 1,591 217 1,808 (825 ) -   983  
Operating net income/(loss) $2,596 $353 $2,949 $622   ($7 ) $3,564  
 
Operating net income/(loss) per share:
Basic $0.12 $0.02 $0.14 $0.03 ($0.00 ) $0.17
Diluted $0.12 $0.02 $0.13 $0.03 ($0.00 ) $0.16

A statement of JMP Group's operating net income on a segment basis for
the year ended December 31, 2017, is set forth below.

  Year Ended December 31, 2017
      Net    
Broker- Asset Operating Corporate Elimin- JMP
(in thousands, except per share amounts) Dealer Mgmt. Platforms Income ations Group
 
Revenues:
Investment banking $77,329 - $77,329 - ($7) $77,322
Brokerage 21,129 - 21,129 - - 21,129
Asset management-related fees 11 $19,888 19,899 $2,021 (3,429) 18,491
Principal transactions - - - 3,186 - 3,186
Gain on sale and payoff of loans - - - 892 - 892

Gain on repurchase of asset-backed securities issued

- - - 210 - 210
Net dividend income - - - 1,189 - 1,189
Net interest income - - - 3,557 - 3,557
Provision for loan losses - - - (2,543) - (2,543)
Adjusted net revenues 98,469 19,888 118,357 8,512 (3,436) 123,433
 
Expenses:
Non-interest expense/(income) 87,572 19,699 107,271 14,455 (3,429) 118,297
Operating income/(loss) before taxes 10,897 189 11,086 (5,943) (7) 5,136
 
Income tax expense/(benefit) 4,142 72 4,214 (3,409) - 805
Operating net income/(loss) $6,755 $117 $6,872 ($2,534) ($7) $4,331
 
Operating net income/(loss) per share:
Basic $0.31 $0.01 $0.32 ($0.12) ($0.00) $0.20
Diluted $0.31 $0.01 $0.31 ($0.12) ($0.00) $0.20

Book Value per Share

At December 31, 2017, JMP Group's book value per share was $4.43. Adding
back accumulated depreciation and amortization expense related to
commercial real estate investments that is recognized by JMP Group as a
result of equity method accounting reflects the reversal of that expense
in the calculation of adjusted net revenues, adjusted principal
transaction revenues and operating net income. Likewise, adding back the
accumulated general loan loss provision related to collateralized loan
obligations reflects the reversal of that provision in the calculation
of adjusted net revenues and operating net income. Such reversals result
in an adjusted book value per share of $5.23, as set forth below.

(in thousands, except per share amounts)   Dec, 31, 2017   Sept. 30, 2017   Dec. 31, 2016
 
Shareholders' equity $96,308 $100,710 $119,377

 

Accumulated unrealized loss – real estate-related depreciation and
amortization

$11,950 $10,777 $4,304

Accumulated general loan loss provision – collateralized loan
obligations

5,458 4,778 4,080
Adjusted shareholders' equity $113,716 $116,265 $127,761
 
Book value per share $4.43 $4.69 $5.56

Adjusted book value per share

$5.23 $5.42 $5.95
 
Basic shares outstanding 21,729 21,461 21,457
 
Quarterly operating ROE (1) 14.5% 8.9% 9.4%
LTM operating ROE (1) 4.0% 3.2% 8.6%
 
Quarterly adjusted operating ROE (1) 12.4% 7.8% 8.9%
LTM adjusted operating ROE (1) 3.6% 2.9% 8.2%
(1)   Operating return on equity (ROE) equals operating net income divided
by average shareholders' equity. Adjusted operating ROE equals
operating net income divided by average adjusted shareholders'
equity. For more information about operating net income, including a
reconciliation to net income attributable to JMP Group, see the
section above titled "Operating Net Income."

Company management utilizes adjusted book value on a total and per share
basis, adjusted in the manner described above, as an additional means of
evaluating JMP Group's efforts to retain earnings and build
shareholders' equity. Management believes that adjusted book value per
share provides useful information by excluding non-cash expenses related
to real estate investments that otherwise obscure the company's
increases and decreases in net worth as a result of its core business
activities. Management also believes that adjusted book value allows for
a better comparison of shareholders' equity and the return on that
equity in a given period to those in prior and future periods.

Cautionary Note Regarding Quarterly Financial Results

Due to the nature of its business, JMP Group's quarterly revenues and
net income may fluctuate materially depending on: the size and number of
investment banking transactions on which it advises; the timing of the
completion of those transactions; the size and number of securities
trades which it executes for brokerage customers; the performance of its
asset management funds and inflows and outflows of assets under
management; gains or losses stemming from sales of or prepayments on, or
losses stemming from defaults on, loans underlying the company's
collateralized loan obligations; and the effect of the overall condition
of the securities markets and economy as a whole. Accordingly, revenues
and net income in any particular quarter may not be indicative of future
results. Furthermore, JMP Group's compensation expense is generally
based upon revenues and can fluctuate materially in any quarter,
depending upon the amount and sorts of revenue recognized as well as
other factors. The amount of compensation and benefits expense
recognized in a particular quarter may not be indicative of such expense
in any future period. As a result, the company suggests that its annual
results may be the most meaningful gauge for investors in evaluating the
performance of its business.

Cautionary Note Regarding Forward-Looking Statements

This press release may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements provide JMP Group's current expectations or
forecasts about future events, including beliefs, plans, objectives,
intentions, assumptions and other statements that are not historical
facts. Forward-looking statements are subject to known and unknown risks
and uncertainties that could cause actual results to differ materially
from those expected or implied by the forward-looking statements. The
company's actual results could differ materially from those anticipated
in forward-looking statements for many reasons, including the factors
described in the sections entitled "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the company's Form 10-K for the year ended December 31,
2016, as filed with the U.S. Securities and Exchange Commission on March
14, 2017, as well as in the similarly captioned sections of other
periodic reports filed by the company under the Exchange Act. The Form
10-K for the year ended December 31, 2016, and all other periodic
reports are available on JMP Group's website at www.jmpg.com
and on the SEC's website at www.sec.gov.
Unless required by law, JMP Group undertakes no obligation to publicly
update or revise any forward-looking statement to reflect circumstances
or events after the date of this press release.

Disclosure Information

JMP Group uses the investor relations section of its website as a means
of complying with its disclosure obligations under Regulation FD.
Accordingly, investors should monitor the company's website in addition
to its press releases, SEC filings, and investor conference calls and
webcasts.

Conference Call

JMP Group will hold a conference call to discuss the results detailed
herein at 10:00 a.m. EST on Thursday, February 15, 2018. To participate
in the call, dial (888) 566-6060 (domestic) or (973) 200-3100
(international). The conference identification number is 2786428.

The conference call will also be broadcast live over the Internet and
will be accessible via a link in the investor relations section of the
company's website, at investor.jmpg.com/events.cfm.
The Internet broadcast will be archived and will remain available on the
website for future replay.

About JMP Group

JMP Group LLC is a diversified capital markets firm that provides
investment banking, equity research, and sales and trading services to
corporate and institutional clients as well as alternative asset
management products and services to institutional and high-net-worth
investors. JMP Group conducts its investment banking and research, sales
and trading activities through JMP Securities; its hedge fund, venture
and private capital, and credit management activities through Harvest
Capital Strategies, JMP Asset Management and JMP Credit Advisors; and
the management of Harvest Capital Credit Corporation (NASDAQ:HCAP), a
business development company, through HCAP Advisors. For more
information, visit www.jmpg.com.

JMP GROUP LLC

Consolidated Statements of Financial Condition

(Unaudited)
(in thousands)   Dec. 31, 2017   Dec. 31, 2016
 
Assets
 
Cash and cash equivalents $87,771 $85,492
Restricted cash and deposits 51,727 227,656
Marketable securities owned, at fair value 20,825 18,722
Other investments 27,816 32,869
Loans held for sale, at fair value - 32,488
Loans held for investment, net of allowance for loan losses 83,948 1,930

Loans collateralizing asset-backed securities issued, net of
allowance for loan losses

765,583 654,127
Cash collateral posted for total return swap - 25,000
Deferred tax assets 5,954 7,942
Other assets 32,834 39,604
Total assets $1,076,458 $1,125,830
 
Liabilities and Shareholders' Equity
 
Liabilities:
Marketable securities sold, but not yet purchased, at fair value $7,919 $4,747
Accrued compensation 43,131 36,158
Asset-backed securities issued, net of issuance costs 738,248 825,854
CLO V warehouse facility 61,250 -
Bond payable, net of issuance costs 93,103 91,785
Deferred tax liability 2,188 3,872
Other liabilities 20,905 28,120
Total liabilities 966,744 990,536
 
Shareholders' Equity:
Total JMP Group LLC shareholders' equity 96,308 119,377
Non-redeemable non-controlling interest 13,406 15,917
Total equity 109,714 135,294
Total liabilities and shareholders' equity $1,076,458 $1,125,830

JMP GROUP LLC

Consolidated Statements of Operations

(Unaudited)
  Quarter Ended   Year Ended
(in thousands, except per share amounts) Dec. 31, 2017   Dec. 31, 2016 Dec. 31, 2017   Dec. 31, 2016
 
Revenues:
Investment banking $22,509 $13,634 $77,322 $55,353
Brokerage 6,002 6,834 21,129 23,755
Asset management fees 3,971 7,833 18,049 26,791
Principal transactions (2,997 ) 5,856 (6,605 ) 16,182

(Loss)/gain on sale and payoff of loans

(411 ) (957 ) 797 (1,918 )
Net dividend income 371 263 1,188 999
Other income 430   873   1,351   1,407  
Non-interest revenues 29,875   34,336   113,231   122,569  
 
Interest income 11,496 10,787 41,159 46,784
Interest expense (9,401 ) (8,493 ) (34,050 ) (32,790 )
Net interest income 2,095   2,294   7,109   13,994  
 
Loss on repurchase or early retirement of debt (775 ) - (6,107 ) -
Provision for loan losses (875 ) (606 ) (4,363 ) (1,586 )
Total net revenues 30,320   36,024   109,870   134,977  
 
Non-interest expenses:
Compensation and benefits 21,537 30,960 90,550 101,233
Administration 1,465 1,384 7,464 7,024
Brokerage, clearing and exchange fees 921 802 3,209 3,110
Travel and business development 1,299 1,223 4,034 4,771
Communications and technology 1,158 1,079 4,308 4,172
Occupancy 1,079 1,048 4,418 3,901
Professional fees 1,298 1,154 4,407 4,399
Depreciation 271 312 1,162 1,280
Other 417   621   2,410   2,273  
Total non-interest expense 29,445   38,583   121,962   132,163  
 
Net income/(loss) before income tax expense 875 (2,559 ) (12,092 ) 2,814
Income tax (benefit) 1,913   (3,855 ) 1,744   (4,648 )
Net (loss)/income (1,038 ) 1,296 (13,836 ) 7,462

Less: Net income attributable to non-redeemable non-controlling
interest

362   507   2,074   4,536  
Net (loss)/income attributable to JMP Group ($1,400 ) $789   ($15,910 ) $2,926  
 
Net (loss)/income attributable to JMP Group per share:
Basic ($0.06 ) $0.04 ($0.74 ) $0.14
Diluted ($0.06 ) $0.04 ($0.74 ) $0.13
 
Weighted average common shares outstanding:
Basic 21,568 21,071 21,579 21,105
Diluted 21,568 22,018 21,579 21,841

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