JMP Group Inc. (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter ended September 30, 2010.
- Total net revenues were $32.7 million,
compared to $41.7 million for the third quarter of 2009. For the
nine months ended September 30, 2010, total net revenues were
$100.7 million, compared to $103.4 million for the nine months
ended September 30, 2009.
- Net income attributable to JMP Group
was $1.4 million, or $0.06 per diluted share, compared to $3.0
million, or $0.13 per diluted share, for the third quarter of 2009.
For the nine months ended September 30, 2010, net income
attributable to JMP Group was $5.3 million, or $0.24 per diluted
share, compared to $7.3 million, or $0.34 per diluted share, for
the nine months ended September 30, 2009.
- Operating net income was $3.7 million,
or $0.17 per diluted share, an increase of 42.2% from
$2.6 million, or $0.12 per diluted share, for the third
quarter of 2009. For the nine months ended September 30, 2010,
operating net income was $11.4 million, or $0.51 per diluted share,
an increase of 66.5% from $6.9 million, or $0.32 per diluted
share, for the nine months ended September 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.”
“JMP produced better-than-expected operating earnings for the
third quarter, despite a number of challenges,” said Joe Jolson,
chairman and chief executive officer of JMP Group. “At JMP
Securities, investment banking revenues were above plan, while our
brokerage revenues fell short of expectations primarily due to a
dramatic industry-wide slowdown in institutional equities trading
activity. Harvest Capital Strategies had a flattish quarter on its
invested capital but benefitted from better-than-expected incentive
fee income in its REIT advisory business. JMP Credit had another
good quarter, driven by continued loan sale gains and the
distribution of excess cash flow from Cratos CLO I. While we would
expect some level of loan sale income to continue for the
foreseeable future, it is difficult to predict the timing of loan
sales. Assuming business conditions remain stable, we would hope to
continue to generate an annual after-tax return of at least 10% on
our adjusted tangible book value.”
Revenues
Investment Banking
Investment banking revenues were $12.3 million, an increase of
18.7% from $10.4 million for the third quarter of 2009. For the
nine months ended September 30, 2010, investment banking revenues
were $28.4 million, an increase of 13.3% from $25.1 million
for the nine months ended September 30, 2009.
The company executed 16 investment banking transactions during
the quarter, compared to 17 during the third quarter of 2009.
Public equity underwriting revenues were $4.3 million, down
from $6.5 million for the third quarter of 2009, as the
company executed seven public equity offerings, versus 12 a year
earlier. Private placement fee revenues amounted to
$5.1 million, up from $1.3 million for the third quarter
of 2009, as the company executed five private placements, versus
two a year prior. Strategic advisory revenues totaled
$2.9 million, up from $2.6 million for the third quarter
of 2009, with the company acting as a strategic advisor on four
completed transactions, versus three a year earlier.
Brokerage
Net brokerage revenues were $5.9 million, a decrease of 25.7%
from $7.9 million for the third quarter of 2009. For the nine
months ended September 30, 2010, net brokerage revenues were $21.3
million, a decrease of 17.7% from $25.8 million for the nine months
ended September 30, 2009.
Asset Management
Asset management-related fee revenues were $3.6 million, an
increase of 2.3% from $3.5 million for the third quarter of 2009,
including incentive fees of $0.7 million and $1.1 million,
respectively. For the nine months ended September 30, 2010, asset
management-related fee revenues were $10.4 million, a decrease of
38.5% from $16.9 million for the nine months ended September 30,
2009, including incentive fees of $2.2 million and $9.5 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 $0.2 million for the third quarters of
2010 and 2009, respectively, and $1.1 million and $1.2 million
for the nine months ended September 30, 2010 and September 30,
2009, respectively.
Client assets under management at September 30, 2010 totaled
$1.3 billion, including $568.4 million of funds managed by Harvest
Capital Strategies and $766.2 million par value of loans and cash
underlying the two collateralized loan obligations managed by JMP
Credit Advisors (the internal manager of JMP Credit Corporation).
Client assets under management totaled $1.1 billion at both June
30, 2010 and September 30, 2009.
Principal Transactions
Principal transactions generated net revenues of $1.1 million,
compared to net revenues of $6.0 million for the third quarter of
2009. For the nine months ended September 30, 2010, principal
transactions generated net revenues of $2.9 million, compared to
net revenues of $15.4 million for the nine months ended
September 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
$1.3 million, compared to net realized and unrealized gains of
$3.7 million for the third quarter of 2009. In addition, an
investment in publicly traded New York Mortgage Trust, Inc.
produced an unrealized loss of $0.2 million, compared to an
unrealized gain of $2.3 million for the third quarter of
2009.
Gain on Sales and Payoffs of Loans and Loan Loss Provision
JMP Credit realized gains of $7.0 million due to the sale or
payoff of 17 of the loans in its portfolio, compared to $6.7
million due to the sale or payoff of six loans during the third
quarter of 2009. For the nine months ended September 30, 2010,
realized gains amounted to $26.2 million as a result of the sale or
payoff of 49 loans. At September 30, 2010, 39 loans with an
aggregate par value of $173.2 million and an associated liquidity
discount of $51.6 million remained from the portfolio acquired by
JMP Credit in April 2009.
A loan loss provision of $0.5 million was recorded for the
quarter, of which $0.3 million was with regard to an impaired
direct investment by JMP Group and $0.2 million was with regard to
performing loans as a general reserve at JMP Credit. For the third
quarter of 2009, a loan loss provision of $1.4 million was recorded
with regard to impaired loans at JMP Credit.
At September 30, 2010, gross impaired loans totaled $14.0
million, or 3.2% of gross loans outstanding, compared to $24.4
million, or 5.5% of gross loans outstanding, at June 30, 2010 and
$93.6 million, or 19.9% of gross loans outstanding, at September
30, 2009. With regard to impaired loans at September 30, 2010,
discounts and reserves (including credit discounts, liquidity
discounts and allowances for loan losses) equaled
$11.9 million, or 84.5% of gross impaired loans outstanding.
With regard to performing loans at September 30, 2010, discounts
and reserves (including liquidity discounts, allowances for loan
losses and deferred loan fees) equaled $55.7 million, or 13.1%
of gross performing loans outstanding.
Net Interest and Net Dividend Income
Net interest income equaled $3.0 million, compared to $3.7
million for the third quarter of 2009, and net dividend income
totaled $0.4 million, versus $0.8 million for the third quarter of
2009. For the nine months ended September 30, 2010, net interest
income was $11.0 million, compared to $6.7 million for the nine
months ended September 30, 2009, and net dividend income was
$1.5 million, versus $1.8 million for the nine months
ended September 30, 2009.
For the quarter and nine months ended September 30, 2010,
unscheduled principal prepayments enhanced the yield on loans at
JMP Credit and contributed $0.9 million and $3.6 million of
net interest income, respectively. JMP Credit did not exist prior
to April 2009, which partially accounts for the significant
difference in net interest income for the nine months ended
September 30, 2010 and September 30, 2009.
Expenses
Compensation and Benefits
Compensation and benefits expense was $19.4 million, compared to
$29.3 million for the third quarter of 2009. For the nine months
ended September 30, 2010, compensation and benefits expense was
$65.5 million, compared to $70.8 million for the nine months
ended September 30, 2009. Of the amounts recorded for the quarter
and nine months ended September 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
$0.3 million and $2.2 million, respectively, while such
expense attributable to RSUs granted thereafter was $0.4 million
and $0.8 million, respectively.
As a percentage of total net revenues, compensation and benefits
expense was 59.2%, compared to 70.3% for the third quarter of 2009,
and was 65.0% for the nine months ended September 30, 2010,
compared to 68.5% for the nine months ended September 30, 2009. Pro
forma compensation and benefits expense (which excludes the cost of
RSU grants) was 57.0% of total net revenues, compared to 67.3% for
the third quarter of 2009, and was 62.0% for the nine months ended
September 30, 2010, compared to 64.8% for the nine months ended
September 30, 2009.
Non-Compensation Expense
Non-compensation expense was $8.7 million, compared to $5.9
million for the third quarter of 2009. For the nine months ended
September 30, 2010, non-compensation expense was $22.2 million,
compared to $17.5 million for the nine months ended September
30, 2009. Contributing to non-compensation expense for the quarter
and nine months ended September 30, 2010 was a one-time impairment
charge of $2.8 million recorded in connection with the
purchase of an asset management contract during the quarter. For
more information regarding the acquisition and subsequent charge,
please see the section below titled “Purchase of CLO Management
Contract.”
As a percentage of total net revenues, non-compensation expense
was 26.7% for the quarter, compared to 14.0% for the third quarter
of 2009, and 22.0% for the nine months ended September 30, 2010,
compared to 17.0% for the nine months ended September 30,
2009. Excluding the one-time impairment charge of $2.8 million, the
adjusted non-compensation expense ratio was 18.3% for the quarter
and 19.3% for the nine months ended September 30, 2010.
Purchase of CLO Management Contract
On June 11, 2010, JMP Capital, a subsidiary of JMP Group, agreed
to purchase the collateral management contracts for two
collateralized loan obligations, or CLOs, from Princeton Advisory
Group, Inc. for up to $5.0 million. The transfers of the contracts
were subject to the receipt of certain consents and other
conditions. On September 8, 2010, JMP Capital completed the
purchase of one of the two management contracts for
$3.8 million, and the contract was transferred to JMP Credit
Advisors. However, since a single investor had previously acquired
control of the right to transfer the management contract without
cause at any time with 90 days’ notice, JMP Group recorded an
impairment charge of $2.8 million for the quarter. JMP Capital has
since restructured the transaction to provide JMP Group with
indemnity from the seller in the amount of $2.6 million, which is
collateralized by certain assets and $1.0 million in cash. The
indemnity amortizes over a period ending in February 2013, with the
cash portion amortizing last, over the final year of the indemnity
period. JMP Credit Advisors has not been given notice that the
management contract will be transferred to another manager and, as
long as JMP Credit Advisors remains the manager, it will continue
to earn management fees from the CLO.
Share Repurchase Activity
During the quarter ended September 30, 2010, JMP Group
repurchased a total of 168,739 shares of its common stock at an
average price of $6.48 per share, or $1.1 million in aggregate.
Book Value per Share
At September 30, 2010, JMP Group’s tangible book value per share
was $5.62, compared to $5.65 at June 30, 2010 and $5.54 at
September 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 September 30, 2010 would have been $4.68, as indicated by
the reconciliation below.
(in thousands, except per share amounts) Sept.
30, 2010 June 30, 2010 Sept. 30, 2009 Total JMP Group
stockholders' equity $122,124 $121,276 $115,101 Goodwill and
intangible assets - - - Tangible stockholders'
equity 122,124 121,276 115,101 Liquidity discount on loans
51,603 64,410 101,270 Liquidity discount on asset-backed securities
issued (86,836 ) (93,866 ) (114,784 ) Net liquidity discount
(35,233 ) (29,456 ) (13,514 ) Income tax benefit (assumed tax rate
of 42%) 14,798 12,372 5,676 Net after-tax
liquidity discount (20,435 ) (17,084 ) (7,838 ) Adjusted
tangible stockholders' equity $101,689 $104,192
$107,263 Adjusted tangible book value per share $4.68
$4.85 $5.17 Basic shares outstanding
21,733 21,482 20,765 Operating ROATE*
14.3%
16.6%
9.3%
* Return on adjusted tangible equity = annualized 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, (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 periods
prior to the second quarter of 2010, 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 $0.3 million and $2.2 million for the
quarter and nine months ended September 30, 2010,
respectively;
- the grant of restricted stock units
subsequent to the company’s IPO, which resulted in non-cash
compensation expense of $0.4 million and $0.8 million for
the quarter and nine months ended September 30, 2010,
respectively;
- the non-cash net amortization of
liquidity discounts at JMP Credit, due to scheduled contractual
principal repayments, of $2.1 million and $5.3 million for the
quarter and nine months ended September 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 nine months ended
September 30, 2010 and for comparable prior periods is set forth
below.
(in thousands, except per share amounts) Three Months
Ended Sept. 30, 2010 Sept. 30, 2009 Net income attributable
to JMP Group Inc. $1,431 $2,969 Add back: Income tax expense
1,943 2,879 Income before taxes 3,374 5,848 Add
back/(subtract): Compensation expense – IPO-related RSUs 340 708
Compensation expense – Post-IPO RSUs 392 543 Net amortization of
liquidity discounts on loans 2,132 161 Loss/(gain) on strategic
equity investments 212 (2,723 ) Operating income before taxes 6,450
4,537 Income tax expense (assumed tax rate of 42%) 2,709
1,906 Operating net income $3,741 $2,631
Operating net income per share: Basic $0.17 $0.13 Diluted $0.17
$0.12 Weighted average shares outstanding: Basic 21,583
20,755 Diluted 22,114 22,015 (in thousands, except
per share amounts) Nine Months Ended Sept. 30, 2010 Sept.
30, 2009 Net income attributable to JMP Group Inc. $5,334
$7,289 Add back: Income tax expense 5,464 6,491
Income before taxes 10,798 13,780 Add back/(subtract):
Compensation expense – IPO-related RSUs 2,237 2,470 Compensation
expense – Post-IPO RSUs 809 1,418 Net amortization of liquidity
discounts on loans 5,324 1,341 Loss/(gain) on strategic equity
investments 548 (5,991 ) Gain on bargain purchase - (1,179 )
Operating income before taxes 19,716 11,839 Income tax
expense (assumed tax rate of 42%) 8,281 4,972 Operating net
income $11,435 $6,867 Operating net income per share:
Basic $0.53 $0.33 Diluted $0.51 $0.32 Weighted average
shares outstanding: Basic 21,616 20,633 Diluted 22,243 21,640
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, including beliefs,
plans, objectives, intentions, assumptions and other statements
that are not historical facts, such as the likelihood and size of
future investment gains and the company’s ability to generate
future after-tax returns and earnings. 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 10:00 a.m. EDT on Wednesday, October 27, 2010.
To participate in the call, dial (877) 231-6085 (domestic) or (706)
643-3419 (international). The conference identification code is
“20184499.”
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) Sept. 30, 2010 Dec. 31, 2009
Assets Cash and cash equivalents $57,616 $75,680 Restricted
cash and deposits and receivable from clearing broker 47,782 38,237
Marketable securities owned, at fair value 15,005 5,899 Other
investments 53,310 59,190
Loans held for investment, net of
allowance for loan losses
1,473 1,592
Loans collateralizing asset-backed
securities issued, net of purchase discounts and allowance for loan
losses
373,217 327,967 Deferred tax assets 37,727 51,499 Other assets
17,173 14,657
Total assets
$603,303 $574,721 Liabilities and Stockholders' Equity
Liabilities: Accrued compensation $21,782 $43,026 Asset-backed
securities issued, net of purchase discounts 344,167 326,632 Note
payable 26,643 9,045 Deferred tax liability 39,547 48,220 Other
liabilities 38,640 22,147 Total liabilities 470,779 449,070
Stockholders' Equity: Total JMP Group Inc. stockholders' equity
122,124 120,635 Noncontrolling interest 10,400 5,016 Total equity
132,524 125,651 Total liabilities and equity $603,303 $574,721
JMP GROUP INC.
Consolidated Statements of
Operations
(Unaudited)
(in thousands, except per share amounts) Three Months
Ended Nine Months Ended Sept. 30, 2010 Sept. 30, 2009
Sept. 30, 2010 Sept. 30, 2009 Revenues: Investment
banking $12,332 $10,391 $28,436 $25,104 Brokerage 5,895 7,939
21,255 25,836 Asset management fees 3,283 3,266 9,316 15,766
Principal transactions 1,055 5,981 2,887 15,403 Gain on sale and
payoff of loans 6,990 6,727 26,231 11,571 Gain on repurchase of
asset-backed securities issued - 4,096 - 4,205 Gain on bargain
purchase - - - 1,179 Net dividend income 357 766 1,472 1,850 Other
income 292 227 1,095 1,154 Non-interest
revenues 30,204 39,393 90,692 102,068
Interest income 11,525 12,214 36,106 24,172 Interest expense
(8,539 ) (8,504 ) (25,089 ) (17,484 ) Net interest income 2,986
3,710 11,017 6,688 Provision for
loan losses (509 ) (1,384 ) (964 ) (5,366 ) Total net revenues
32,681 41,719 100,745 103,390
Non-interest expenses: Compensation and benefits 19,361 29,308
65,474 70,849 Administration 1,328 1,098 4,324 3,541 Brokerage,
clearing and exchange fees 1,177 1,317 3,752 4,057 Travel and
business development 711 534 2,632 1,587 Communications and
technology 990 989 3,136 2,807 Occupancy 672 610 1,994 1,788
Professional fees 818 899 2,606 2,783 Depreciation 158 189 495 592
Impairment loss on intangible asset 2,750 - 2,750 - Other 137
215 479 379
Total non-interest expenses
28,102 35,159 87,642 88,383
Income before income tax expense 4,579 6,560 13,103 15,007 Income
tax expense 1,943 2,879 5,464 6,491 Net
income 2,636 3,681 7,639 8,516 Less: Net income attributable to
noncontrolling interest 1,205 712 2,305 1,227
Net income attributable to JMP Group Inc. $1,431
$2,969 $5,334 $7,289 Net income
attributable to JMP Group Inc. per share: Basic $0.07 $0.14 $0.25
$0.35 Diluted $0.06 $0.13 $0.24 $0.34 Weighted average
common shares outstanding: Basic 21,583 20,755 21,616 20,633
Diluted 22,114 22,015 22,243 21,640
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