JMP Group Reports Fourth Quarter and Fiscal Year 2018 Financial Results

SAN FRANCISCO–(BUSINESS WIRE)–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, 2018.

A summary of JMP Group’s operating results for the quarter and year
ended December 31, 2018, and for comparable prior periods, is set forth
below.

  Quarter Ended   Year Ended
(in thousands, except per share amounts) Dec. 31, 2018   Sept. 30, 2018   Dec. 31, 2017 Dec. 31, 2018   Dec. 31, 2017
 
Total net revenues $31,698 $33,251 $30,836 $136,424 $110,386
 

Net income/(loss) attributable to JMP Group

($203 ) $288 ($1,373 ) ($2,187 ) ($15,883 )

Net income/(loss) attributable to JMP Group per share

($0.01 ) $0.01 ($0.06 ) ($0.10 ) ($0.74 )
 
Operating net income $2,525 $1,741 $3,591 $6,018 $4,358
Operating net income per share $0.12 $0.08 $0.16 $0.28 $0.20
 
Book value per share $3.93 $4.06 $4.43 $3.93 $4.43
Adjusted book value per share $4.98 $5.07 $5.23 $4.98 $5.23

For more information about operating net income, including a
reconciliation to net income, and adjusted book value per share,
including a reconciliation to book value per share, see the section
below titled “Non-GAAP Financial Measures.”

We had a better-than-expected fourth quarter, with operating earnings
of $0.12 per share,” said Chairman and Chief Executive Officer Joe
Jolson. “JMP Securities contributed $0.08 per share, despite the sharp
sell-off in the equities market, which limited capital markets activity
in the period. For the full year, JMP Securities’ operating earnings per
share were up nearly 20%, to $0.37 per share, driven by record advisory
fee revenues that rose nearly 40%. As a result, JMP Securities generated
an after-tax return on equity of more than 30% for 2018.

Asset management fee income and investment income combined to
contribute $0.14 of operating EPS, up 8% from the fourth quarter of
2017. Investment income covered our fixed corporate costs for the third
consecutive quarter, and earnings of $0.12 per share produced by our
untaxed pass-through entities more than covered our fourth-quarter cash
distributions of $0.09 per share.

We also initiated an aggressive corporate simplification strategy
during the fourth quarter, intended to make our business less
complicated to manage and easier for investors to understand. As
disclosed in January, we have elected to be taxed as a C corporation
going forward, which will increase our corporate tax rate but will
eliminate Schedule K-1s for investors, removing substantial corporate
costs and potentially increasing our appeal to institutional investors.”

Segment Results of Operations

A summary of JMP Group’s operating net income per share by segment for
the quarter and year ended December 31, 2018, and for comparable prior
periods, is set forth below.

  Quarter Ended   Year Ended
($ as shown) Dec. 31, 2018   Sept. 30, 2018   Dec. 31, 2017 Dec. 31, 2018   Dec. 31, 2017
 
Broker-dealer $0.08 $0.09 $0.12 $0.37 $0.31
 
Asset management fee income 0.01 0.00 0.02 (0.03 ) 0.01
Investment income 0.14   0.10   0.12   0.34   0.23  
Total asset management 0.14 0.10 0.13 0.31 0.23
 
Corporate costs (0.11 ) (0.11 ) (0.09 ) (0.41 ) (0.34 )
 
Operating EPS (diluted) $0.12   $0.08   $0.16   $0.28   $0.20  

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

For more information about 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 $17.8 million, a decrease of 21.0% from
$22.5 million for the quarter ended December 31, 2017. For the year
ended December 31, 2018, investment banking revenues were a record
$88.1 million, an increase of 13.9% from $77.3 million for the year
ended December 31, 2017.

A summary of the company’s investment banking revenues and transaction
counts for the quarter and year ended December 31, 2018, and for
comparable prior periods, is set forth below.

  Quarter Ended   Year Ended
Dec. 31, 2018 Sept. 30, 2018 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2017
($ in thousands) Count   Revenues Count   Revenues Count   Revenues Count   Revenues Count   Revenues

Equity and debt origination

17 $7,383 (1) 21 $11,366 (1) 21 $12,863 90 $54,660 (1) 103 $53,355

Strategic advisory and private placements

5 10,405 4 9,729 4 9,646 22 33,447 18 23,967
Total 22 $17,788 (1) 25 $21,095 (1) 25 $22,509 112 $88,107 (1) 121 $77,322
(1)   Prior to 2018, JMP Group presented investment banking revenues net
of related expenses. In the quarter ended March 31, 2018, the
company adopted new accounting guidance on revenue recognition,
which resulted in the presentation of investment banking revenues
and related expenses on a gross basis in the company’s financial
statements. These related expenses were $0.8 million and $0.9
million for the quarters ended December 31 and September 30, 2018,
respectively, and $6.5 million for the year ended December 31, 2018.

Brokerage

Net brokerage revenues were $5.9 million, a decrease of 1.3% from $6.0
million for the quarter ended December 31, 2017. For the year ended
December 31, 2018, net brokerage revenues were $20.7 million, a decrease
of 2.0% from $21.1 million for the year ended December 31, 2017.

Total capital markets revenues, which consist of net brokerage revenues
produced by the institutional equities division in addition to equity
and debt origination revenues generated by the investment banking
division, were $13.3 million and $75.4 million for the quarter and year
ended December 31, 2018, respectively, compared to $18.9 million and
$74.5 million for the quarter and year ended December 31, 2017,
respectively.

Asset Management

Asset management fees were $3.6 million, a decrease of 8.3% from $4.0
million for the quarter ended December 31, 2017. For the year ended
December 31, 2018, asset management fees were $19.1 million, an increase
of 6.1% from $18.0 million for the year ended December 31, 2017.

A summary of the company’s client assets under management for the
quarter ended December 31, 2018, and for comparable prior periods, is
set forth below.

(in millions)   Dec. 31, 2018   Sept. 30, 2018   Dec. 31, 2017

Harvest Capital Strategies, JMP Asset Management and HCAP Advisors

$921 $889 $897
JMP Credit Advisors 1,245 1,211 894
Client assets under management 2,166 2,100 1,791
Assets under management by sponsored funds (1) 3,462 3,753 3,313

Client assets under management, including sponsored funds

$5,628 $5,853 $5,104
(1)     Funds managed by third-party asset managers in which JMP Group owns
an economic interest.

Principal Transactions

Principal transactions generated a net realized and unrealized loss of
$0.8 million, compared to a net realized and unrealized loss of $2.8
million for the quarter ended December 31, 2017. For the year ended
December 31, 2018, principal transactions generated a net realized and
unrealized loss of $2.3 million, compared to a net realized and
unrealized loss of $6.4 million for the year ended December 31, 2017.

Net Interest Income

Net interest income was $5.0 million, an increase of 106.1% from $2.4
million for the quarter ended December 31, 2017. For the year ended
December 31, 2018, net interest income was $16.9 million, an increase of
127.2% from $7.5 million for the year ended December 31, 2017. The
year-over-year increase was primarily due to a higher average loan
balance for 2018 than for 2017, due to the reinvestment of funds that
resulted from the liquidation of JMP Credit Advisors CLO I in February
2017.

Provision for Loan Losses

For the quarter ended December 31, 2018, the net loan loss provision was
$0.9 million, including a general loan loss provision of $0.6 million
and a specific loan loss provision of $0.3 million.

Expenses

Compensation and Benefits

Compensation and benefits expense was $21.3 million, compared to $21.6
million for the quarter ended December 31, 2017. As a percentage of net
revenues, compensation and benefits expense was 67.2%, compared to 70.0%
for the quarter ended December 31, 2017. With regard to annually awarded
compensation, a non-GAAP measure that adjusts compensation expense
related to share-based awards and deferred compensation, compensation
and benefits expense was 67.5% of net revenues, compared to 72.6% for
the quarter ended December 31, 2017.

For the year ended December 31, 2018, compensation and benefits expense
was $97.4 million, compared to $90.6 million for the year ended December
31, 2017. As a percentage of net revenues, compensation and benefits
expense was 71.4%, compared to 82.1% for the year ended December 31,
2017. With regard to annually awarded compensation, compensation and
benefits expense was 71.2% of net revenues, compared to 81.1% for the
year ended December 31, 2017.

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

Non-Compensation Expense

Non-compensation expense was $8.5 million and $39.1 million for the
quarter and year ended December 31, 2018, respectively, compared to $7.9
million and $31.4 million for the quarter and year ended December 31,
2017, respectively. The year-over-year increases were in part
attributable to the adoption of new accounting guidance on revenue
recognition, which caused $0.8 million of investment banking-related
expenses to be presented on a gross basis and to be included within
non-compensation expense for the quarter ended December 31, 2018. For
the year ended December 31, 2018, the amount was $6.5 million. In prior
periods, such expenses were presented as a deduction from investment
banking revenues.

Share Repurchase Activity

During the quarter ended December 31, 2018, JMP Group repurchased
approximately 195,000 shares of its common stock at an aggregate cost of
$0.9 million, or $4.79 per share. As of January 1, 2019, approximately
370,000 shares were eligible for repurchase through April 30, 2019.

Personnel

At December 31, 2018, the company had 228 full-time employees, compared
to 224 at September 30, 2018, and 230 at December 31, 2017.

Non-GAAP Financial Measures

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

Compensation Ratio

A compensation ratio expresses compensation expense as a percentage of
net revenues in a given period. As presented by JMP Group, an adjusted
compensation ratio is a non-GAAP financial measure that utilizes
adjusted compensation and benefits expense as the numerator. This
adjusted ratio excludes certain compensation-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 and
deferred compensation (so that the compensation expenses used in the
numerator correspond to the adjusted net revenues generated in the
periods presented).

A statement of JMP Group’s compensation ratio for the quarter and year
ended December 31, 2018, and for comparable prior periods, is set forth
below.

  Quarter Ended   Year Ended
($ in thousands) Dec. 31, 2018   Sept. 30, 2018   Dec. 31, 2017 Dec. 31, 2018   Dec. 31, 2017
 
Total net revenues $31,698   $33,251   $30,836   $136,424   $110,386  
 
Compensation and benefits $21,289 $22,671 $21,588 $97,359 $90,601
 
Subtract/(add back):
Share-based awards and deferred compensation (122 ) 76   (786 ) 167   1,077  
 
Adjusted compensation and benefits $21,411   $22,595   $22,374   $97,192   $89,524  
 

Ratio of compensation expense to net revenues

67.2 % 68.2 % 70.0 % 71.4 % 82.1 %

Ratio of adjusted compensation expense to net revenues

67.5 % 68.0 % 72.6 % 71.2 % 81.1 %

Operating Net Income

Operating net income is a non-GAAP financial measure that (i) reverses
compensation expense related to share-based awards and deferred
compensation, (ii) reverses the general loan loss provision taken with
regard to certain CLOs, (iii) excludes the impact of the early
retirement of debt issued by JMP Group and a CLO, (iv) excludes
transaction costs related to a CLO, (v) excludes amortization expense
related to a CLO, (vi) reverses unrealized gains or losses related to
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
    collateralized loan obligations and loans held for investment, which
    is required by GAAP;
  • one-time expenses associated with the redemption of debt underlying
    JMP Credit Advisors CLO III (in the first quarter of 2018), the
    redemption of senior notes due 2021 (in the fourth quarter of 2017),
    the partial redemption of senior notes due 2023 (in the third quarter
    of 2018), and the resulting acceleration of the amortization of
    remaining capitalized issuance costs for each;
  • one-time transaction costs related to the refinancing of notes issued
    by JMP Credit Advisors CLO III;
  • amortization expense related to an intangible asset resulting from the
    repurchase of a portion of the equity of JMP Credit Advisors CLO III;
  • unrealized gains or losses on commercial real estate investments,
    adjusted for non-cash expenditures, including depreciation and
    amortization;
  • unrealized mark-to-market gains or losses on the company’s strategic
    equity investments as well as certain warrant positions; and
  • a combined federal, state and local income tax rate of 26% at the
    taxable direct subsidiary of parent company JMP Group, while applying
    a tax rate of 0% to the company’s other direct subsidiary, which is a
    “pass-through entity” for tax purposes.

A reconciliation of JMP Group’s net income to its operating net income
for the quarter and year ended December 31, 2018, and for comparable
prior periods is set forth below.

  Quarter Ended   Year Ended
(in thousands, except per share amounts) Dec. 31, 2018   Sept. 30, 2018   Dec. 31, 2017 Dec. 31, 2018   Dec. 31, 2017
 
Net income/(loss) attributable to JMP Group ($203 ) $288 ($1,373 ) ($2,187 ) ($15,883 )
 
Add back/(subtract):
Income tax expense/(benefit) 1,313   527   1,913   1,167   1,744
Income/(loss) before taxes 1,110 815 540 (1,020 ) (14,139 )
 
Add back/(subtract):

Share-based awards and deferred compensation

(122 ) 76 (786 ) 167 1,077

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

530 855 680 2,878 1,377
Early retirement of debt 170 1,067 1,488 6,499
Restructuring costs – CLO portfolios 15 54 315
Amortization of intangible asset – CLO III 69 69 69 276 276

Unrealized (gain)/loss – real estate-related depreciation and
amortization

369 260 1,173 2,233 7,645

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

837   (327 ) 1,816   853   2,113
Operating income/(loss) before taxes 2,793 1,918 4,574 6,929 5,163
 
Income tax expense/(benefit) 268   177   983   911   805
Operating net income/(loss) $2,525   $1,741   $3,591   $6,018   $4,358
 
Operating net income/(loss) per share:
Basic $0.12 $0.08 $0.17 $0.28 $0.20
Diluted (1) $0.12 $0.08 $0.16 $0.28 $0.20
 
Weighted average shares outstanding:
Basic 21,326 21,435 21,568 21,490 21,579
Diluted (1) 21,614 21,737 22,017 21,701 21,980
(1)   On a GAAP basis, the weighted average number of diluted shares
outstanding for the quarters ended December 31, 2018, and December
31, 2017, was 21,326,473 and 21,567,723, respectively, and for the
years ended December 31, 2018, and December 31, 2017, was 21,490,277
and 21,579,107, respectively, equivalent to the weighted average
number of basic shares outstanding, due to the company’s net loss
for those periods. Under GAAP, in a period of net loss, dilutive
securities are disregarded in the calculation of earnings per share.

Book Value per Share

At December 31, 2018, JMP Group’s book value per share was $3.93. 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 $4.98, as set forth below.

(in thousands, except per share amounts)   Dec. 31, 2018   Sept. 30, 2018   Dec. 31, 2017
 
Shareholders’ equity $83,707 $86,734 $96,335
 

Accumulated unrealized loss – real estate-related depreciation and
amortization

$14,184 $13,815 $11,950

Accumulated general loan loss provision – collateralized loan
obligations

8,337 7,806 5,458
Adjusted shareholders’ equity $106,227 $108,355 $113,743
 
Book value per share $3.93 $4.06 $4.43
Adjusted book value per share $4.98 $5.07 $5.23
 
Basic shares outstanding 21,320 21,357 21,729
 
Quarterly operating ROE (1) 11.8% 7.9% 14.6%
LTM operating ROE (1) 6.7% 7.6% 4.1%
 
Quarterly adjusted operating ROE (1) 9.4% 6.4% 12.5%
LTM adjusted operating ROE (1) 5.5% 6.3% 3.6%
(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.”

Conference Call

JMP Group will hold a conference call to discuss the results detailed
herein at 10:00 a.m. ET on Thursday, February 14, 2019. To participate
in the call, dial (888) 566-6060 (domestic) or (973) 200-3100
(international). The conference identification number is 2372106.

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.

Cautionary Note Regarding Quarterly Financial Results

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

Cautionary Note Regarding Forward-Looking Statements

This press release may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements provide JMP Group’s current expectations or
forecasts about future events, including beliefs, plans, objectives,
intentions, assumptions and other statements that are not historical
facts. Forward-looking statements are subject to known and unknown risks
and uncertainties that could cause actual results to differ materially
from those expected or implied by the forward-looking statements. The
company’s actual results could differ materially from those anticipated
in forward-looking statements for many reasons, including the factors
described in the sections entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in the company’s Form 10-K for the year ended December 31,
2017, as filed with the U.S. Securities and Exchange Commission on March
28, 2018, as well as in the similarly captioned sections of other
periodic reports filed by the company under the Exchange Act. The Form
10-K for the year ended December 31, 2017, and all other periodic
reports are available on JMP Group’s website at www.jmpg.com
and on the SEC’s website at www.sec.gov.
Unless required by law, JMP Group undertakes no obligation to publicly
update or revise any forward-looking statement to reflect circumstances
or events after the date of this press release.

Disclosure Information

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

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.

Contacts

Investor Relations Contact
JMP Group LLC
Andrew Palmer
(415)
835-8978
apalmer@jmpg.com

Media Relations Contacts
Dukas Linden Public Relations, Inc.
Zach
Leibowitz
(646) 722-6528
zach@dlpr.com

Alyssa Noud
(646) 722-6525
alyssa@dlpr.com

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