JMP Group Reports First Quarter 2019 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 ended March 31, 2019.

A summary of JMP Group’s operating results for the quarter ended March
31, 2019, and for comparable prior periods, is set forth below.

  Quarter Ended
(in thousands, except per share amounts) Mar. 31, 2019   Dec. 31, 2018   Mar. 31, 2018
 
Total net revenues $27,167 $31,698 $27,211
 
Net income/(loss) attributable to JMP Group $5,069 ($203 ) ($283 )
Net income/(loss) attributable to JMP Group per share $0.24 ($0.01 ) ($0.01 )
 
Operating net income $1,669 $2,525 ($1,631 )
Operating net income per share $0.08 $0.12 ($0.07 )
 
Book value per share $4.08 $3.93 $4.34
Adjusted book value per share $4.77 $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 first quarter, thanks to very strong
investment results, with operating net income of $0.08 per share,” said
Chairman and Chief Executive Officer Joe Jolson. “JMP Securities,
normally a meaningful contributor to earnings, faced a stiff headwind in
the form of a partial government shutdown and lost $0.05 per share, with
the SEC’s closure drastically curtailing capital markets activity for
much of the period. Asset management fee income and investment income
combined to contribute $0.12 per share, compared to a loss of $0.07 per
share for the first quarter of 2018. In an important strategic shift, we
executed a March sale of a controlling interest in JMP Credit Advisors
to Medalist Partners, raising additional growth capital for our
corporate credit business and adding approximately $0.08 to operating
EPS.

With the closing of the Medalist transaction, we completed an
aggressive corporate simplification process that began in the fourth
quarter of last year with the goal of making our business simpler for us
to manage and easier for investors to understand. Going forward, we do
not expect that our CLO investments will be consolidated in our
financial statements, which will mean a decrease in our total assets
from $1.4 billion to approximately $220 million and a decrease in our
long-term debt from $1.2 billion to approximately $84 million.
Additionally, the sale of our largest hedge fund, Harvest Small Cap
Partners, at year-end substantially reduces the volatility of not only
our revenues—specifically quarterly incentive fee income—but also our
closely-watched compensation ratio. Finally, the IRS recently approved
our previously disclosed election to be taxed as a C corporation for
2019 and beyond, increasing our corporate tax rate but removing
substantial corporate costs and eliminating Schedule K-1s for investors.”

Segment Results of Operations

A summary of JMP Group’s operating net income per share by segment for
the quarter ended March 31, 2019, and for comparable prior periods, is
set forth below.

  Quarter Ended

($ as shown)

Mar. 31, 2019   Dec. 31, 2018     Mar. 31, 2018
 
Broker-dealer ($0.05 ) $0.08 $0.08
 
Asset management fee income (0.03 ) 0.01 (0.03 )
Investment income 0.23  

(1)

0.14   (0.03 )
Total asset management 0.20 0.14 (0.07 )
 
Corporate costs (0.07 ) (0.11 ) (0.09 )
 
Operating EPS (diluted) $0.08   $0.12   ($0.07 )

(1)

 

Includes a gain of $0.08 per share on the sale of a controlling
interest in JMP Credit Advisors LLC to Medalist Partners LP.

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 $11.9 million, a decrease of 42.5% from
$20.7 million for the quarter ended March 31, 2018.

A summary of the company’s investment banking revenues and transaction
counts for the quarter ended March 31, 2019, and for comparable prior
periods, is set forth below.

  Quarter Ended
Mar. 31, 2019   Dec. 31, 2018   Mar. 31, 2018
($ in thousands) Count   Revenues Count   Revenues Count   Revenues
Equity and debt origination 17 $6,789 (1) 17 $7,383 (1) 21 $11,862
Strategic advisory and private placements 6 5,090 5 10,405 7 8,800
Total 23 $11,879 (1) 22 $17,788 (1) 28 $20,662

Brokerage

Net brokerage revenues were $4.5 million, a decrease of 2.8% from $4.7
million for the quarter ended March 31, 2018.

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 $11.3 million, a decrease of 31.5% from $16.5 million for
the quarter ended March 31, 2018.

Asset Management

Asset management fees were $1.7 million, a decrease of 73.5% from $6.4
million for the quarter ended March 31, 2018. The decrease is primarily
due to the sale of the Harvest Small Cap Partners hedge fund strategy at
year-end 2018. For the quarter ended March 31, 2018, the fund strategy
contributed $4.8 million to asset management fees. While the sale
results in a considerable loss of asset management revenue, it was
structured to have a neutral to slightly positive effect on JMP Group’s
operating net income going forward, as the company will share in the
fund strategy’s revenues in 2019 and beyond.

A summary of the company’s client assets under management for the
quarter ended March 31, 2019, and for comparable prior periods, is set
forth below.

(in millions)   Mar. 31, 2019   Dec. 31, 2018   Mar. 31, 2018

Harvest Capital Strategies, JMP Asset Management and HCAP Advisors

$517 $921 $883
JMP Credit Advisors (1) 1,245 965
Client assets under management 517 2,166 1,848
Assets under management by sponsored funds (2) 4,928 3,449 3,420

Client assets under management, including sponsored funds

$5,445 $5,615 $5,268

(1)

 

As announced on March 20, 2019, JMP Group sold a 50.1% equity
interest in JMP Credit Advisors LLC to Medalist Partners LP and a
4.9% interest to employees of JMP Credit Advisors. Consequently,
assets managed by Medalist Partners Corporate Finance, the former
JMP Credit Advisors, are included among sponsored funds as of
March 31, 2019.

(2)

Funds managed by third-party asset managers in which JMP Group
owns an economic interest.

Principal Transactions

Principal transactions generated a net gain of $5.3 million, compared to
a net loss of $3.6 million for the quarter ended March 31, 2018. The
difference is primarily due to a gain of $3.4 million on the previously
announced sale of a majority interest in JMP Credit Advisors for the
quarter ended March 31, 2019, in addition to a gain of $0.2 million on
JMP Group’s investment in Workspace Property Trust, compared to a loss
of $2.0 million on the investment for the quarter ended March 31, 2018,
due to costs associated with a failed initial public offering.

Net Interest Income

Net interest income was $3.5 million, an increase of 17.0% from $3.0
million for the quarter ended March 31, 2018.

Provision for Loan Losses

For the quarter ended March 31, 2019, there was no loan loss provision,
compared to a net loan loss provision of $1.5 million for the quarter
ended March 31, 2018, as a result of better-than-expected credit
performance and the deconsolidation of the collateralized loan
obligations managed by JMP Credit Advisors from JMP Group’s financial
statements.

Expenses

Compensation and Benefits

Compensation and benefits expense was $17.2 million, compared to $24.3
million for the quarter ended March 31, 2018. As a percentage of net
revenues, compensation and benefits expense was 63.4%, compared to 89.2%
for the quarter ended March 31, 2018. 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 60.3% of net revenues, compared to 88.6% for
the quarter ended March 31, 2018.

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

Non-Compensation Expense

Non-compensation expense was $8.9 million, compared to $10.3 million for
the quarter ended March 31, 2018.

Share Repurchase Activity

During the quarter ended March 31, 2019, JMP Group repurchased
approximately 157,000 shares of its common stock at an aggregate cost of
$0.7 million, or $4.23 per share.

Personnel

At March 31, 2019, the company had 197 full-time employees, compared to
228 at December 31, 2018, and 211 at March 31, 2018. The decrease in
2019 is primarily due to the sale of the Harvest Small Cap Partners fund
strategy at year-end 2018 and the sale of a majority interest in JMP
Credit Advisors in March 2019, as the related employees departed JMP
Group upon the closing of both transactions.

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 ended
March 31, 2019, and for comparable prior periods, is set forth below.

  Quarter Ended
($ in thousands) Mar. 31, 2019   Dec. 31, 2018   Mar. 31, 2018
 
Total net revenues $27,167   $31,698   $27,211  
 
Compensation and benefits $17,222 $21,289 $24,261

Subtract/(add back):

Share-based awards and deferred compensation 844   (122 ) 144  
Adjusted compensation and benefits $16,378   $21,411   $24,117  
 
Ratio of compensation expense to net revenues

63.4%

 

67.2%

 

89.2%

 

Ratio of adjusted compensation expense to net revenues

60.3%

 

67.5%

 

88.6%

 

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, prior to the quarter ended March 31, 2019;
  • 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 management fees from 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
  • as of the quarter ended March 31, 2019, a combined federal, state and
    local income tax rate of 26% at the consolidated taxable parent
    company, JMP Group, while, prior to the quarter ended March 31, 2019,
    a combined federal, state and local income tax rate of 26% at the
    taxable direct subsidiary of JMP Group and a tax rate of 0% at the
    company’s other direct subsidiary, which was a “pass-through entity”
    for tax purposes.

A reconciliation of JMP Group’s net income to its operating net income
for the quarter ended March 31, 2019, and for comparable prior periods
is set forth below.

  Quarter Ended
(in thousands, except per share amounts) Mar. 31, 2019   Dec. 31, 2018   Mar. 31, 2018
 
Net income/(loss) attributable to JMP Group $5,069 ($203 ) ($283 )
 
Add back/(subtract):
Income tax expense/(benefit) (4,102 ) 1,313   (5,568 )
Income/(loss) before taxes 967 1,110 (5,851 )
 
Add back/(subtract):
Share-based awards and deferred compensation 844 (122 ) 144

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

530 329
Early retirement of debt 1,318
Restructuring costs – CLO portfolios 64
Amortization of intangible asset – CLO III 277 69 69

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

557 369 1,628

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

(390 ) 837   638  
Operating income/(loss) before taxes 2,255 2,793 (1,661 )
 
Income tax expense/(benefit) 586   268   (30 )
Operating net income/(loss) $1,669   $2,525   ($1,631 )
 
Operating net income/(loss) per share:
Basic $0.08 $0.12 ($0.08 )
Diluted (1) $0.08 $0.12 ($0.07 )
 
Weighted average shares outstanding:
Basic 21,288 21,326 21,666
Diluted (1) 21,429 21,614 21,811

(1)

 

On a GAAP basis, the weighted average number of diluted shares
outstanding for the quarters ended December 31, 2018, and March
31, 2018, was 21,326,473 and 21,665,652, 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 March 31, 2019, JMP Group’s book value per share was $4.08. 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. Starting with the quarter
ended March 31, 2019, the add-back includes a tax provision related to
the expense reversed in that period, due to the company’s election to be
taxed as a C corporation as of January 1, 2019. 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, an
adjustment not made subsequent to the sale of a majority interest in JMP
Credit Advisors in March 2019. As a result, adjusted book value per
share was $4.77 for the quarter ended March 31, 2019, as set forth below.

(in thousands, except per share amounts)   Mar. 31, 2019   Dec. 31, 2018   Mar. 31, 2018
 
Shareholders’ equity $86,633   $83,707   $93,418  
 

Accumulated unrealized loss – real estate-related depreciation and
amortization

$14,596 $14,184 $13,578

Accumulated general loan loss provision – collateralized loan
obligations

  8,337   5,787  
Adjusted shareholders’ equity $101,229   $106,227   $112,783  
 
Book value per share $4.08   $3.93   $4.34  
Adjusted book value per share $4.77   $4.98   $5.23  
 
Basic shares outstanding 21,210 21,320 21,547
 
Quarterly operating ROE (1)

7.8%

 

11.8%

 

(6.9%

)

LTM operating ROE (1)

10.6%

 

6.7%

 

4.7%

 

 
Quarterly adjusted operating ROE (1)

6.4%

 

9.4%

 

(5.8%

)

LTM adjusted operating ROE (1)

8.7%

 

5.5%

 

4.1%

 

(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, May 2, 2019. To participate in the
call, dial (888) 566-6060 (domestic) or (973) 200-3100 (international).
The conference identification number is 7289566.

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,
2018, as filed with the U.S. Securities and Exchange Commission on March
28, 2019, 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
capital and private capital activities through Harvest Capital
Strategies and JMP Asset Management; and the management of Harvest
Capital Credit Corporation (NASDAQ: HCAP), a business development
company, through HCAP Advisors. For more information, visit www.jmpg.com.

JMP GROUP LLC

Consolidated Statements of Financial Condition

(Unaudited)

(in thousands)   Mar. 31, 2019   Dec. 31, 2018
 
Assets
 
Cash and cash equivalents $41,909 $70,927
Restricted cash and deposits 1,221 61,881
Marketable securities owned 92,190 18,874
Other investments 23,447 16,124
Loans held for investment, net of allowance for loan losses 4,962 29,608

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

1,161,463
Other assets 58,036   32,365
Total assets $221,765   $1,391,242
 
Liabilities and Shareholders’ Equity
 
Liabilities:
Marketable securities sold, but not yet purchased $2,696 $4,626
Accrued compensation 5,647 41,609
Bond payable, net of issuance costs 83,600 83,497
Note payable 829 829
Asset-backed securities issued, net of issuance costs 1,112,342
CLO warehouse facility 22,500
Other liabilities 42,546   28,633
Total liabilities 135,318   1,294,036
 
Shareholders’ Equity:
Total JMP Group LLC shareholders’ equity 86,633 83,707
Non-redeemable non-controlling interest (186 ) 13,499
Total equity 86,447   97,206
Total liabilities and shareholders’ equity $221,765   $1,391,242

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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