JMP Group Inc. (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter ended June 30, 2010.
- Total net revenues were $42.8
million, an increase of 14.3% from $37.5 million for the second
quarter of 2009. For the six months ended June 30, 2010, total net
revenues were $68.1 million, an increase of 10.4% from $61.7
million for the six months ended June 30, 2009.
- Net income attributable to JMP
Group was $2.2 million, or $0.10 per diluted share, compared to
$4.3 million, or $0.20 per diluted share, for the second quarter of
2009. For the six months ended June 30, 2010, net income
attributable to JMP Group was $3.9 million, or $0.17 per diluted
share, compared to $4.3 million, or $0.20 per diluted share, for
the six months ended June 30, 2009.
- Operating net income was $4.6
million, or $0.21 per diluted share, compared to $3.3 million, or
$0.16 per diluted share, for the second quarter of 2009. For the
six months ended June 30, 2010, operating net income was $7.7
million, or $0.34 per diluted share, compared to $4.2 million,
or $0.20 per diluted share, for the six months ended June 30, 2009.
During the second quarter of 2010, JMP Group changed its
calculation of operating net income; and, as a result, operating
net income as previously reported does not compare to operating net
income reported herein for the quarters or six-month periods ended
June 30, 2010 or June 30, 2009. For more information on operating
net income, including a reconciliation to net income, please see
the section below titled “Non-GAAP Financial Measures.”
“We were pleased with our overall operating results for the
second quarter,” said Joe Jolson, chairman and chief executive
officer of JMP Group, “particularly in light of the increased
industry headwinds in institutional brokerage and investment
banking. JMP Securities’ investment banking revenues were up
sharply, and institutional brokerage revenues were flat compared to
the prior quarter’s levels. Harvest Capital Strategies had a
respectable quarter, given the double-digit declines in the broad
market indices, generating a weighted average return of 1.9% on its
invested capital. JMP Credit had a record quarter thanks to
materially improved liquidity in middle-market corporate credits,
which spurred many existing borrowers to opportunistically
refinance their debt prior to maturity. As has been the case for
the past year, we have reinvested a portion of the unsustainably
high profits from JMP Credit in growth initiatives at JMP
Securities and, to a lesser extent, at Harvest Capital Strategies.
We are hopeful that these investments will prove to be productive
in 2011 and beyond.”
Revenues
Investment Banking
Investment banking revenues were $10.6 million, an increase of
0.4% from $10.6 million for the second quarter of 2009. For the six
months ended June 30, 2010, investment banking revenues were
$16.1 million, an increase of 9.4% from $14.7 million for the
six months ended June 30, 2009.
The company executed 22 investment banking transactions during
the quarter, compared to 15 during the second quarter of 2009.
Public equity underwriting revenues were $6.1 million, up from
$4.4 million for the second quarter of 2009, as the company
executed 15 public equity offerings, versus seven a year earlier.
Private placement fee revenues amounted to $2.6 million, in
line with $2.6 million for the second quarter of 2009, as the
company executed four private placements, in keeping with four a
year prior. Strategic advisory revenues totaled $2.0 million,
down from $3.6 million for the second quarter of 2009, with
the company acting as a strategic advisor on three completed
transactions, versus four a year earlier.
Brokerage
Net brokerage revenues were $7.7 million, a decrease of 17.8%
from $9.4 million for the second quarter of 2009. For the six
months ended June 30, 2010, net brokerage revenues were $15.4
million, a decrease of 14.2% from $17.9 million for the six months
ended June 30, 2009.
Asset Management
Asset management-related fee revenues were $3.4 million, a
decrease of 26.6% from $4.7 million for the second quarter of
2009, including incentive fees of $0.9 million and $1.9 million,
respectively. For the six months ended June 30, 2010, asset
management-related fee revenues were $6.8 million, a decrease of
49.1% from $13.4 million for the six months ended June 30, 2009,
including incentive fees of $1.5 million and $8.5 million,
respectively. Asset management-related fee revenues include asset
management fees as well as 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) reported in JMP Group’s financial statements as other
income. Fee revenues classified as other income were
$0.3 million and $0.7 million for the second quarters of
2010 and 2009, respectively, and $0.8 million and $0.9 million for
the six months ended June 30, 2010 and June 30, 2009,
respectively.
Client assets under management at June 30, 2010 totaled $1.1
billion, including $578.3 million of funds managed by Harvest
Capital Strategies and $483.0 million par value of loans and cash
underlying the collateralized loan obligation managed by JMP Credit
Corporation. Client assets under management totaled $1.1 billion at
March 31, 2010 and $1.0 billion at June 30, 2009.
Principal Transactions
Principal transactions generated net revenues of $0.4 million, a
decrease of 93.7% from $6.5 million for the second quarter of 2009.
For the six months ended June 30, 2010, principal transactions
generated net revenues of $1.8 million, a decrease of 80.5% from
$9.4 million for the six months ended June 30, 2009. Principal
transactions primarily include direct investments made by JMP Group
as well as investments by the company in funds managed by Harvest
Capital Strategies.
For the quarter, equity investments and investments by JMP Group
in its hedge funds produced net realized and unrealized gains of
$1.0 million, compared to net realized and unrealized gains of
$4.4 million for the second quarter of 2009. In addition, an
investment in publicly traded New York Mortgage Trust, Inc.
produced an unrealized loss of $0.5 million, compared to an
unrealized gain of $2.1 million for the second quarter of
2009.
Gain on Sales and Payoffs of Loans and Loan Loss Provision
JMP Credit Corporation realized gains of $15.8 million due to
the sale or payoff of 21 of the loans in its portfolio, an increase
of 225.4% from $4.8 million for the second quarter of 2009 due to
the sale or payoff of six loans. For the six months ended June 30,
2010, realized gains amounted to $19.2 million as a result of the
sale or payoff of 32 loans. At June 30, 2010, 44 loans with an
aggregate par value of $271.7 million and an associated liquidity
discount of $64.4 million remained from the portfolio acquired by
JMP Credit in April 2009.
A loan loss provision of $0.2 million was recorded for the
quarter as a general reserve with regard to performing loans at JMP
Credit. For the second quarter of 2009, a loan loss provision of
$3.3 million was recorded, $0.7 million of which was in connection
with a loan held for investment by JMP Group and $2.5 million
of which was with regard to impaired loans at JMP Credit.
At June 30, 2010, gross impaired loans declined 59.1% to $24.4
million, or 5.5% of gross loans outstanding, from $59.8 million, or
12.8% of gross loans outstanding, at March 31, 2010. With regard to
impaired loans at June 30, 2010, discounts and reserves (including
credit discounts, liquidity discounts and allowances for loan
losses) totaled $22.2 million, or 90.9% of gross impaired
loans outstanding. With regard to performing loans at June 30,
2010, discounts and reserves (including liquidity discounts,
allowances for loan losses and deferred loan fees) totaled
$67.4 million, or 15.9% of gross performing loans
outstanding.
Net Interest and Net Dividend Income
Net interest income equaled $4.7 million, compared to $2.8
million for the second quarter of 2009, and net dividend income
totaled $0.5 million, versus $0.7 million for the second quarter of
2009. For the six months ended June 30, 2010, net interest income
was $8.0 million, compared to $3.0 million for the six months ended
June 30, 2009, and net dividend income was $1.1 million, in line
with $1.1 million for the six months ended June 30, 2009. The
significant year-over-year differences in net interest income are
due to unscheduled principal prepayments that enhanced the yield on
loans at JMP Credit Corporation and produced $2.4 million and $2.7
million of net interest income for the quarter and six months ended
June 30, 2010, respectively. Additionally, JMP Credit did not
exist prior to April 2009.
Expenses
Compensation and Benefits
Compensation and benefits expense was $30.6 million,
compared to $22.7 million for the second quarter of 2009. For the
six months ended June 30, 2010, compensation and benefits expense
was $46.1 million, compared to $41.5 million for the six months
ended June 30, 2009. Of the amounts recorded for the quarter and
six months ended June 30, 2010, non-cash compensation expense
attributable to restricted stock units, or RSUs, granted in
connection with JMP Group’s May 2007 initial public offering was
$1.2 million and $1.9 million, respectively, while such
expense attributable to RSUs granted thereafter was $0.2 million
and $0.4 million, respectively.
As a percentage of total net revenues, compensation and benefits
expense was 71.4%, compared to 60.7% for the second quarter of
2009, and was 67.7% for the six months ended June 30, 2010,
compared to 67.4% for the six months ended June 30, 2009. Pro forma
compensation and benefits expense (which excludes the cost of RSU
grants) was 68.1% of total net revenues, compared to 57.3% for the
second quarter of 2009, and was 64.3% for the six months ended June
30, 2010, compared to 63.1% for the six months ended June 30,
2009.
Non-Compensation Expense
Non-compensation expense was $7.1 million, compared to $6.4
million for the second quarter of 2009. For the six months ended
June 30, 2010, non-compensation expense was $13.4 million, compared
to $11.7 million for the six months ended June 30, 2009. As a
percentage of total net revenues, non-compensation expense was
16.7% for the quarter, compared to 17.0% for the second quarter of
2009, and 19.7% for the six months ended June 30, 2010, compared to
18.9% for the six months ended June 30, 2009.
Share Repurchase Activity
During the quarter ended June 30, 2010, JMP Group repurchased a
total of 938,458 shares of its common stock at an average price of
$6.88 per share, or $6.5 million in aggregate.
Book Value per Share
At June 30, 2010, JMP Group’s tangible book value per share was
$5.65, compared to $5.68 at March 31, 2010 and $5.35 at June
30, 2009. Adjusting book value to reflect the net liquidity
discount on JMP Credit’s loan portfolio and asset-backed securities
issued, JMP Group’s adjusted tangible book value per share at June
30, 2010 would have been $4.85, as indicated by the reconciliation
below.
(in thousands, except per share amounts) June 30, 2010
Mar. 31, 2010 June 30, 2009 Total JMP
Group stockholders' equity $ 121,276 $ 123,230 $ 111,004 Goodwill
and intangible assets - - -
Tangible stockholders' equity 121,276 123,230 111,004
Liquidity discount on loans 64,410 84,771 115,875 Liquidity
discount on asset-backed securities issued (93,866 )
(100,787 ) (121,015 ) Net liquidity discount (29,456 )
(16,016 ) (5,140 ) Income tax benefit (assumed tax rate of 42%)
12,372 6,727 2,159 Net
after-tax liquidity discount (17,084 ) (9,289 )
(2,981 ) Adjusted tangible stockholders' equity $
104,192 $ 113,941 $ 108,023 Adjusted
tangible book value per share $ 4.85 $ 5.26 $ 5.21
Basic shares outstanding 21,482 21,676 20,750
Operating ROATE* 16.6 % 10.7 % 12.3 % * Return on adjusted
tangible equity = operating net income / average adjusted tangible
stockholders' equity.
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. Additionally, company management believes that this
presentation enables 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 expenses or gains that JMP Group expects to
continue to recognize; the adjustment of these items should not be
construed as an inference that these expenses or gains are unusual,
infrequent or non-recurring. Therefore, company management believes
that both JMP Group’s GAAP measures of its 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.
Operating Net Income
Operating net income is a non-GAAP financial measure that (i)
reverses stock-based compensation expense related to equity awards
granted both at the time of JMP Group’s May 2007 initial public
offering and thereafter, (ii) excludes the net amortization of
discounts on loans held and asset-backed securities issued by JMP
Credit Corporation, (iii) excludes net unrealized gains and losses
on strategic equity investments, and (iv) assumes an effective tax
rate of 42%. This methodology differs from that employed by JMP
Group in recent prior periods, when operating net income was
defined as excluding only stock-based compensation expense related
to the company’s IPO. As now calculated, in particular, operating
net income adjusts for:
- the grant of 1,931,060
restricted stock units at the time of the company’s IPO, which
resulted in non-cash compensation expense of $1.2 million and
$1.9 million for the quarter and six months ended June 30, 2010,
respectively;
- the grant of restricted stock
units subsequent to the company’s IPO, which resulted in non-cash
compensation expense of $0.2 million and $0.4 million for
the quarter and six months ended June 30, 2010,
respectively;
- the non-cash net amortization of
liquidity discounts at JMP Credit, due to scheduled contractual
principal repayments, of $1.7 million and $3.2 million for the
quarter and six months ended June 30, 2010, respectively;
- unrealized mark-to-market gains
or losses on the company’s strategic investments in publicly traded
New York Mortgage Trust, Inc. and, prior to December 31, 2009,
Hercules Technology Growth Capital, Inc.;
- a non-cash bargain purchase gain
of $1.2 million resulting from the acquisition of Cratos Capital
Partners by JMP Credit during the quarter ended June 30, 2009;
and
- a combined federal, state and
local income tax rate of 42%.
A reconciliation of JMP Group’s net income to the company’s
operating net income for the quarter and six months ended June 30,
2010 and for comparable prior periods is set forth below.
Three Months Ended (in thousands, except per
share amounts) June 30, 2010 Mar. 31, 2010 Net income
attributable to JMP Group Inc. $ 2,185 $ 1,718 Add back:
Income tax expense 2,134 1,388 Income before
taxes 4,319 3,106 Add back/(subtract): Compensation expense
– IPO-related RSUs 1,221 676 Compensation expense – Post-IPO RSUs
191 226 Net amortization of liquidity discounts on loans 1,696
1,496
Loss/(gain) on strategic equity
investments
548 (212 ) Gain on bargain purchase - -
Operating income before taxes 7,975 5,292 Income tax expense
(assumed tax rate of 42%) 3,350 2,223
Operating net income $ 4,625 $ 3,069 Operating net
income per share: Basic $ 0.21 $ 0.14 Diluted $ 0.21 $ 0.14
Weighted average shares outstanding: Basic 21,654 21,612 Diluted
22,295 22,484 Three Months Ended (in
thousands, except per share amounts) Dec. 31, 2009 Sept. 30,
2009 June 30, 2009 Mar. 31, 2009 Net income
attributable to JMP Group Inc. $ 3,521 $ 2,969 $ 4,286 $ 34
Add back: Income tax expense 1,171 2,879
3,560 52 Income before taxes 4,692 5,848 7,846
86 Add back/(subtract): Compensation expense – IPO-related
RSUs 691 708 803 959 Compensation expense – Post-IPO RSUs 5,164 543
466 409 Net amortization of liquidity discounts on loans 789 161
1,180 -
Loss/(gain) on strategic equity
investments
43 (2,723 ) (3,354 ) 84 Gain on bargain purchase - -
(1,179 ) - Operating income before taxes
11,379 4,537 5,762 1,538 Income tax expense (assumed tax
rate of 42%) 4,779 1,906 2,420
646 Operating net income $ 6,600 $ 2,631 $ 3,342
$ 892 Operating net income per share: Basic $ 0.31 $
0.13 $ 0.16 $ 0.04 Diluted $ 0.30 $ 0.12 $ 0.16 $ 0.04
Weighted average shares outstanding: Basic 21,258 20,755 20,643
20,500 Diluted 22,228 22,015 21,323 20,702
Six Months Ended (in thousands, except per share amounts)
June 30, 2010 June 30, 2009 Net income attributable
to JMP Group Inc. $ 3,903 $ 4,320 Add back: Income tax
expense 3,522 3,612 Income before taxes 7,425
7,932 Add back/(subtract): Compensation expense –
IPO-related RSUs 1,896 1,761 Compensation expense – Post-IPO RSUs
418 875 Net amortization of liquidity discounts on loans 3,192
1,180
Loss/(gain) on strategic equity
investments
335 (3,269 ) Gain on bargain purchase - (1,179 )
Operating income before taxes 13,266 7,300 Income tax
expense (assumed tax rate of 42%) 5,572 3,066
Operating net income $ 7,694 $ 4,234 Operating net
income per share: Basic $ 0.36 $ 0.21 Diluted $ 0.34 $ 0.20
Weighted average shares outstanding: Basic 21,633 20,572 Diluted
22,378 21,167
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
or including certain items that may not be representative of the
company’s core operating results or business outlook. 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 periods 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 stemming
from sales of or prepayments on, or losses stemming from defaults
on, loans underlying the company’s collateralized loan obligation;
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.
Further, JMP Group’s compensation expense is generally based upon
revenues and can fluctuate materially in any particular quarter
depending upon the amount and sort of revenue recognized as well as
other factors. The amount of compensation and benefits expense
recognized in any particular quarter may not be indicative of such
expense in a future period. As a result, the company suggests that
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 contains 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. Forward-looking
statements include statements about the company’s expectations,
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. JMP Group’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, 2009 as filed with the Securities and Exchange Commission on
March 9, 2010 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, 2009 and all other
periodic reports are available on JMP Group’s website at
http://www.jmpg.com and on the Securities and Exchange Commission’s
website at http://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.
Conference Call
JMP Group will hold a conference call to discuss the results
detailed herein at 11:00 a.m. EDT on Wednesday, July 28, 2010. To
participate in the call, dial 800-895-1549 (domestic) or
785-424-1057 (international). The conference identification code is
“7Q1101088.”
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
http://investor.jmpg.com. The Internet broadcast will be archived
and will remain available on the website for future replay.
About JMP Group
JMP Group Inc. is a full-service investment banking and
alternative asset management firm that provides investment banking,
sales and trading, and equity research services to corporate and
institutional clients and alternative asset management products to
institutional and high-net-worth investors. JMP Group operates
through three subsidiaries, JMP Securities, Harvest Capital
Strategies and JMP Credit Corporation. For more information, visit
www.jmpg.com.
JMP GROUP INC.
Consolidated Statements of
Financial Condition
(Unaudited)
(in thousands) June 30, 2010 Dec. 31, 2009
Assets Cash and cash equivalents $ 42,598 $ 75,680
Restricted cash and deposits and receivable from clearing broker
50,031 38,237 Marketable securities owned, at fair value 15,136
5,899 Other investments 57,171 59,190 Loans held for investment,
net of allowance for loan losses 1,692 1,592
Loans collateralizing asset-backed
securities issued, net of purchase discounts and allowance for loan
losses
357,786 327,967 Deferred tax assets 41,994 51,499 Other assets
14,428 14,657 Total assets $ 580,836 $ 574,721
Liabilities and Stockholders' Equity Liabilities:
Accrued compensation $ 16,279 $ 43,026 Asset-backed securities
issued, net of purchase discounts 337,138 326,632 Note payable
13,177 9,045 Deferred tax liability 42,516 48,220 Other liabilities
40,185 22,147 Total liabilities 449,295
449,070 Stockholders' Equity: Total JMP Group Inc.
stockholders' equity 121,276 120,635 Noncontrolling interest
10,265 5,016 Total equity 131,541 125,651
Total liabilities and equity $ 580,836 $ 574,721
JMP GROUP INC.
Consolidated Statements of
Operations
(Unaudited)
Three Months Ended Six Months Ended (in
thousands, except per share amounts) June 30, 2010 June 30,
2009 June 30, 2010 June 30, 2009 Revenues: Investment
banking $ 10,635 $ 10,598 $ 16,104 $ 14,713 Brokerage 7,690 9,358
15,360 17,897 Asset management fees 3,142 4,033 6,033 12,499
Principal transactions 411 6,533 1,833 9,423 Gain on sale and
payoff of loans 15,762 4,844 19,242 4,844 Gain on repurchase of
asset-backed securities issued - 108 - 108 Gain on bargain purchase
- 1,179 - 1,179 Net dividend income 499 651 1,115 1,084 Other
income 305 660 801
928 Non-interest revenues 38,444 37,964
60,488 62,675 Interest
income 13,003 11,667 24,581 11,958 Interest expense (8,310 )
(8,899 ) (16,550 ) (8,980 ) Net interest
income 4,693 2,768 8,031
2,978 Provision for loan losses (291 )
(3,257 ) (455 ) (3,982 ) Total net revenues
42,846 37,475 68,064
61,671 Non-interest expenses: Compensation and
benefits 30,592 22,740 46,112 41,541 Administration 1,974 1,322
2,995 2,443 Brokerage, clearing and exchange fees 1,223 1,490 2,574
2,740 Travel and business development 1,001 716 1,921 1,053
Communications and technology 1,073 955 2,146 1,818 Occupancy 671
597 1,322 1,178 Professional fees 813 928 1,788 1,884 Depreciation
169 207 337 403 Other 214 159
344 163 Total non-interest expenses
37,730 29,114 59,539
53,223 Income before income tax expense 5,116 8,361
8,525 8,448 Income tax expense 2,133 3,560
3,522 3,612 Net income 2,983
4,801 5,003 4,836 Less: Net income attributable to noncontrolling
interest 798 515 1,100
516 Net income attributable to JMP Group Inc. $ 2,185
$ 4,286 $ 3,903 $ 4,320 Net
income attributable to JMP Group Inc. per share: Basic $ 0.10 $
0.21 $ 0.18 $ 0.21 Diluted $ 0.10 $ 0.20 $ 0.17 $ 0.20
Weighted average common shares outstanding: Basic 21,654 20,643
21,633 20,572 Diluted 22,295 21,323 22,378 21,167
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