JMP Group Inc. (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter and nine months ended September 30, 2011.
- Operating net income was $2.7 million,
or $0.12 per diluted share, for the quarter, compared to
$3.7 million, or $0.17 per diluted share, for the third
quarter of 2010. For the nine months ended September 30, 2011,
operating net income was a record $13.9 million, or $0.61 per
diluted share, an increase of 20.1% from $11.6 million, or $0.52
per diluted share, for the nine months ended September 30,
2010.
- Excluding the financial impact of gains
recognized by JMP Credit Corporation on the sale or payoff of loans
initially acquired in April 2009, adjusted operating net income was
$0.10 per share and $0.41 per share for the quarter and nine months
ended September 30, 2011, respectively, compared to $0.06 per share
and $0.20 per share for the quarter and nine months ended
September 30, 2010, respectively. For more information on
operating net income and adjusted operating net income, on a
consolidated and a segment basis, including a reconciliation to net
income, please see the section below titled “Non-GAAP Financial
Measures.”
- The net loss attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $1.6
million, or $0.07 per diluted share, for the quarter, compared to
net income of $1.8 million, or $0.08 per diluted share, for
the third quarter of 2010. For the nine months ended September 30,
2011, net income was $3.4 million, or $0.15 per diluted share,
a decrease of 40.3% from $5.7 million, or $0.26 per diluted
share, for the nine months ended September 30, 2010.
- Adjusted net revenues, which exclude
certain non-cash items and noncontrolling interests, were $28.1
million for the quarter, compared to $34.1 million for the third
quarter of 2010. For the nine months ended September 30, 2011,
adjusted net revenues were a record $109.6 million, an
increase of 3.5% from $105.9 million for the nine months ended
September 30, 2010. For more information on adjusted net
revenues, including a reconciliation to net revenues, please see
the section below titled “Non-GAAP Financial Measures.”
- Total net revenues on a GAAP basis were
$17.4 million for the quarter, compared to $32.7 million for the
third quarter of 2010. For the nine months ended September 30,
2011, total net revenues were $91.7 million, a decrease of
8.9% from $100.7 million for the nine months ended
September 30, 2010.
“While not immune from the difficult operating environment that
characterized most of the third quarter, JMP still managed to
generate operating EPS of $0.12 per share and adjusted operating
EPS, which excludes acquired loan sale profits, of $0.10, up from
$0.06 for the third quarter of last year but down from $0.12 for
the second quarter of 2011,” said Chairman and Chief Executive
Officer Joe Jolson. “By this metric, JMP has earned a record $0.60
per share over the latest four quarters, an increase of more than
80% from the $0.33 earned over the previous four quarters.
“Despite a virtual shutdown of the equity capital markets in
August and September, our investment banking group produced flat
sequential quarterly revenues, which suggests continued market
share gains in the period. Net commission revenues increased
sequentially and posted the first year-over-year increase since the
second quarter of 2009. While one quarter does not make a trend, we
may be seeing the first positive signs that our market share growth
strategy is working in that business. Harvest Capital Strategies
had mixed results for the quarter. Asset management fee revenues
were strong, thanks to a great quarter at Harvest Small Cap
Partners; while, at the same time, we experienced a modest net
investment loss as our other funds were negatively impacted to
varying degrees by the sharp equity market sell-off. The remaining
principal losses were unrealized fair value marks, roughly half of
which were due to the consolidation of Harvest Growth Capital, as
reported on a GAAP basis. JMP Credit had another solid quarter,
with $0.15 of operating EPS, including just $0.02 from acquired
loan sale profits.”
Revenues
Investment Banking
Investment banking revenues were $10.0 million for the quarter,
a decrease of 18.5% from $12.3 million for the third quarter of
2010. For the nine months ended September 30, 2011, investment
banking revenues were $40.3 million, an increase of 41.8% from
$28.4 million for the nine months ended September 30,
2010.
The company executed 17 investment banking transactions during
the quarter, compared to 16 during the third quarter of 2010.
Public equity underwriting revenues amounted to $7.3 million,
up from $4.3 million, as the company executed 13 public equity
offerings, versus seven in the third quarter of 2010. Private
capital markets and other revenues were $0.5 million, down
from $5.1 million, with the company executing one private
capital markets transaction, versus five in the third quarter of
2010. Strategic advisory revenues totaled $2.3 million, down
from $2.9 million, with the company acting as a strategic
advisor on three completed transactions, compared to four during
the third quarter of 2010.
Brokerage
Net brokerage revenues were $6.9 million, an increase of 17.0%
from $5.9 million for the third quarter of 2010. For the nine
months ended September 30, 2011, net brokerage revenues were $19.4
million, a decrease of 8.9% from $21.3 million for the nine months
ended September 30, 2010.
Asset Management
Asset management fees and other related revenues totaled $6.9
million, an increase of 90.0% from $3.7 million for the third
quarter of 2010. For the nine months ended September 30, 2011,
asset management fees and other related revenues were $18.0
million, an increase of 70.7% from $10.6 million for the nine
months ended September 30, 2010. For more information on asset
management-related fee revenues, please see the section below
titled “Non-GAAP Financial Measures.”
Client assets under management at September 30, 2011 totaled
$1.3 billion, including $573.7 million of funds managed by Harvest
Capital Strategies and $764.6 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 were $1.3 billion at June 30, 2011
and $1.3 billion at September 30, 2010. Including
sponsored funds, client assets under management totaled
$2.4 billion at September 30, 2011, compared to $2.4
billion at June 30, 2011 and $1.7 billion at September 30, 2010.
Private capital, including corporate credit, small business
lending, REIT advisory services, venture capital and distressed
mortgage investments, represented 49.1% of total sponsored assets
under management at September 30, 2011, compared to 50.2% at
September 30, 2010.
Principal Transactions
Principal transactions generated a net loss of $6.3 million for
the quarter, compared to net revenues of $1.1 million for the
third quarter of 2010. For the nine months ended September 30,
2011, principal transactions generated a net loss of $0.1 million,
compared to net revenues of $2.9 million for the nine months ended
September 30, 2010.
A statement of the company’s principal transaction revenues for
the quarter and nine months ended September 30, 2011 and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended
(in thousands)
Sept. 30, 2011 June 30, 2011 Sept. 30, 2010 Sept. 30,
2011 Sept. 30, 2010
Hedge fund investments
($1,758 ) $1,612 $38 $521 $1,628
Principal investments:
Investment in New York Mortgage Trust (689 ) 545 (218 ) 14 (554 )
Other principal investments (68 ) - (26 ) (349 ) (8 ) Total
principal investments (757 ) 545 (244 ) (335 ) (562 )
Venture investments:
Investment in Harvest Growth Capital (149 ) 8 161 (49 ) 160 Other
venture investments and warrants (642 ) 268 68 (24 ) 563
Total venture investments (791 ) 276 229 (73 ) 723
Principal transaction revenues net of
noncontrolling interest in Harvest Growth Capital
(3,306 ) 2,433 23 113 1,789
Noncontrolling interest in Harvest Growth
Capital
(2,984 ) 121 1,032 (219 ) 1,098 Total
principal transaction revenues ($6,290 ) $2,554 $1,055 ($106
) $2,887
Of the $6.3 million of principal transaction losses for the
third quarter of 2011, $3.0 million was attributable to
noncontrolling interests in net unrealized losses at Harvest Growth
Capital, a venture capital fund managed by Harvest Capital
Strategies that is consolidated under GAAP. GAAP accounting
requires that JMP Group consolidate Harvest Growth Capital due to
Harvest Capital Strategies’ role as the fund’s manager and managing
member, despite the company’s ownership of less than 6.0% of the
fund. The presentation of adjusted net revenues in this press
release excludes noncontrolling interests in Harvest Growth
Capital; and, accordingly, the aforementioned $3.0 million of
net unrealized losses for the third quarter of 2011 is not included
in adjusted net revenues. Net of noncontrolling interests, JMP
Group’s unrealized loss on Harvest Growth Capital for the quarter
was $0.1 million. For more information on adjusted net
revenues, including a reconciliation to net revenues, please see
the section below titled “Non-GAAP Financial Measures.”
Gain on Sales and Payoffs of Loans and Loan Loss Provision
JMP Credit Corporation realized gains of $1.4 million due to the
sale or payoff of 20 of the loans in its portfolio during the
quarter, compared to $7.0 million on 17 loans during the third
quarter of 2010. For the nine months ended September 30, 2011,
realized gains amounted to $15.0 million as a result of the sale or
payoff of 90 loans, compared to $26.2 million on 49 loans for the
nine months ended September 30, 2010. For the quarter and nine
months ended September 30, 2011, realized gains of $0.4 million and
$2.0 million, respectively, were due to the sale or payoff of
loans that had been purchased subsequent to the acquisition of JMP
Credit Corporation in April 2009. At September 30, 2011, 15 loans
with an aggregate par value of $60.8 million and an associated
liquidity discount of $18.4 million remained from the portfolio
acquired in April 2009.
A loan loss provision of $0.1 million was recorded for the
quarter as a general reserve with regard to performing loans at JMP
Credit and in the company’s small business lending portfolio. At
September 30, 2011, general loan loss reserves equaled 0.4% of
gross performing loans, compared to 0.2% at September 30,
2010.
At September 30, 2011, gross impaired loans totaled $14.0
million, or 3.1% of gross loans outstanding, compared to $14.0
million, or 3.2% of gross loans outstanding, at September 30, 2010.
With regard to impaired loans at September 30, 2011, discounts and
reserves (including credit discounts, liquidity discounts,
allowances for loan losses and deferred loan fees) equaled
$11.3 million, or 81.1% of gross impaired loans outstanding.
With regard to performing loans at September 30, 2011, discounts
and reserves (including liquidity discounts, allowances for loan
losses and deferred loan fees) equaled $18.4 million, or 4.2%
of gross performing loans outstanding.
Net Interest and Net Dividend Income
Interest income was $7.5 million for the quarter, and interest
expense was $9.0 million, resulting in a net interest deficit of
$1.6 million, compared to net interest income of $3.0 million for
the third quarter of 2010. Excluding net interest expense due to
net amortization of liquidity discounts, net interest income was
$4.8 million for the quarter, compared to $5.1 million for the
quarter ended September 30, 2010. For the nine months ended
September 30, 2011, net interest income was $0.7 million, compared
to $11.0 million for the nine months ended September 30, 2010;
excluding net interest expense due to net amortization of liquidity
discounts, net interest income was $16.2 million and $16.3 million,
respectively, for the same periods. Net dividend income equaled
$0.3 million for the quarter, compared to $0.4 million for the
third quarter of 2010, and totaled $0.9 million for the nine months
ended September 30, 2011, compared to $1.5 million for the
nine months ended September 30, 2010.
Expenses
Compensation and Benefits
Compensation and benefits expense was $16.0 million for the
quarter, compared to $19.4 million for the third quarter of 2010.
For the nine months ended September 30, 2011, compensation and
benefits expense was $66.2 million, compared to $65.5 million for
the nine months ended September 30, 2010. Of the amount recorded
for the nine months ended September 30, 2011, non-cash compensation
expense attributable to restricted stock units, or RSUs, granted in
connection with JMP Group’s May 2007 initial public offering was
$0.8 million, while such expense attributable to RSUs granted
thereafter was $0.1 million for the quarter and $0.4 million
for the nine months ended September 30, 2011, respectively.
As a percentage of adjusted net revenues, compensation and
benefits expense was 56.9% for the quarter, compared to 56.8% for
the third quarter of 2010, and was 60.4% for the nine months ended
September 30, 2011, compared to 61.8% for the nine months
ended September 30, 2010. Excluding the cost of RSU grants,
compensation and benefits expense was 56.5% of adjusted net
revenues for the quarter, compared to 54.7% for the third quarter
of 2010, and was 59.4% for the nine months ended September 30,
2011, compared to 59.0% for the nine months ended September 30,
2010.
Non-Compensation Expense
Non-compensation expense was $7.5 million for the quarter,
compared to $8.7 million for the third quarter of 2010. For the
nine months ended September 30, 2011, non-compensation expense was
$20.2 million, compared to $22.2 million for the nine months
ended September 30, 2010. As a percentage of adjusted net revenues,
non-compensation expense was 26.8% for the quarter, compared to
25.7% for the third quarter of 2010, and was 18.4% for the nine
months ended September 30, 2011, compared to 20.9% for the nine
months ended September 30, 2010.
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 gains, losses or expenses that JMP Group
expects to continue to recognize; the adjustment of these items
should not be construed as an inference that these gains or
expenses 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.
Adjusted Net Revenue
Adjusted net revenue is a non-GAAP financial measure that (i)
includes management fees eliminated upon the consolidation of
Harvest Growth Capital, (ii) excludes the net amortization of
liquidity discounts on loans held and asset-backed securities
issued by JMP Credit Corporation, (iii) excludes amortization
expense related to an intangible asset, (iv) reverses net
unrealized gains and losses on strategic equity investments and
warrants and (v) excludes noncontrolling interests in net
unrealized gains and losses on Harvest Growth Capital. In
particular, adjusted net revenue adjusts for:
- management fees earned by Harvest
Capital Strategies as manager of Harvest Growth Capital, a venture
capital fund; Harvest Capital Strategies is managing member of
Harvest Growth Capital; and, despite its minority ownership, JMP
Group consolidates the fund in accordance with GAAP accounting
standards and eliminates the management fees in consolidation;
presenting these management fees as though Harvest Growth Capital
were deconsolidated presents the fund’s results in a manner similar
to those of the other funds managed by Harvest Capital
Strategies;
- the non-cash net amortization of
liquidity discounts at JMP Credit, due to scheduled contractual
principal repayments, of $6.4 million and $16.9 million for the
quarter and nine months ended September 30, 2011,
respectively;
- non-cash amortization, in connection
with an intangible asset, of $0.1 million per quarter in certain
periods prior to the quarter ended September 30, 2011;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments in publicly
traded New York Mortgage Trust, Inc. as well as certain warrant
positions; and
- noncontrolling interests in net
unrealized gains and losses generated by Harvest Growth Capital, of
which Harvest Capital Strategies is manager and managing member;
under GAAP, JMP Group consolidates the fund; however, as presented,
unrealized gains and losses that do not accrue to the company are
reversed.
A reconciliation of JMP Group’s net revenues to the company’s
adjusted net revenues for the quarter and nine months ended
September 30, 2011 and for comparable prior periods is set forth
below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2011 June 30, 2011 Sept. 30, 2010 Sept. 30, 2011
Sept. 30, 2010 Revenues: Non-interest revenues
$18,948 $32,529 $29,695 $92,399 $89,728 Net interest income (1,573
) (1,068 ) 2,963 (661 ) 10,994 Total net revenues
17,375 31,461 32,658 91,738 100,722 Management fees earned on
Harvest Growth Capital 203 203 78 609
156
Total net revenues including fees on
Harvest Growth Capital
17,578 31,664 32,736 92,347 100,878 Add back/(subtract):
Net amortization of liquidity discounts on
loans and asset-backed securities issued
6,363 5,746 2,139 16,903 5,331 Amortization of intangible asset -
100 - 200 -
Net unrealized loss/(gain) on strategic
equity investments and warrants
1,141 (824 ) 218 (80 ) 787
Noncontrolling interest in net unrealized
loss/(gain) on Harvest Growth Capital
2,984 (121 ) (1,032 ) 219 (1,098 ) Adjusted net
revenues $28,066 $36,565 $34,061 $109,589
$105,898
Company management has utilized adjusted net revenue, adjusted
in the manner described above, as an additional device to aid in
understanding and analyzing JMP Group’s financial results for the
periods presented. Management believes that adjusted net revenues
provide useful information by excluding non-cash additions to and
deductions from total net revenues as well as noncontrolling
interests that may otherwise obscure the company’s operating
revenues and complicate an assessment of the company’s core
business activities. Management also believes that adjusted net
revenue is a useful measure because it allows for a better
evaluation of the performance of JMP Group’s ongoing business and
facilitates a meaningful comparison of the company’s results in a
given period to those in prior and future periods.
Asset Management-Related Fee Revenues
Asset management-related revenue is a non-GAAP financial measure
that sums asset management fees with certain fee revenues (in
particular, asset management fundraising fees generated by JMP
Securities, loan fees, and revenues from fee-sharing arrangements
with other asset managers) that are reported in JMP Group’s
financial statements as other income. In addition, asset
management-related revenue incorporates management fees earned by
Harvest Capital Strategies as manager of Harvest Growth Capital.
JMP Group consolidates Harvest Growth Capital in accordance with
GAAP accounting standards; however, management fees generated by
the fund are included in asset management-related revenue as though
deconsolidated.
A statement of the company’s asset management-related revenues
for the quarter and nine months ended September 30, 2011 and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2011 June 30, 2011 Sept. 30, 2010 Sept. 30, 2011
Sept. 30, 2010 Base management fees: Fees reported as
asset management fees $2,519 $2,316 $2,545 $7,108 $7,107 Fees
reported as other income 937 569 223 1,923 453 Fees earned at
Harvest Growth Capital 203 203 78 609 156 Total base management
fees 3,659 3,088 2,846 9,640 7,716 Incentive fees: Fees
reported as asset management fees 3,175 3,730 737 7,785 2,209 Fees
reported as other income 29 2 - 381 263 Total incentive fees 3,204
3,732 737 8,166 2,472 Fundraising fees reported as other
income 60 111 69 232 378 Asset management-related fee
revenues: All fees reported as asset management fees 5,694 6,046
3,282 14,892 9,316 All fees reported as other income 1,026 682 292
2,536 1,094 All fees earned at Harvest Growth Capital 203 203 78
609 156 Total asset management-related fee revenues $6,923 $6,931
$3,652 $18,037 $10,566
Company management has utilized asset management-related revenue
as a means of assessing the performance of JMP Group’s combined
asset management activities, including its fundraising and other
services for third parties. Management believes that asset
management-related revenues, as presented above, provide useful
information by indicating the relative contributions of base
management fees and performance-related incentive fees, thus
facilitating a comparison of those fees in a given period to those
in prior and future periods. Management also believes that asset
management-related revenue is a more meaningful measure than
standalone asset management fees as reported, because asset
management-related revenues represent the combined impact of JMP
Group’s various asset management activities on the company’s total
net revenues.
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
liquidity discounts on loans held and asset-backed securities
issued by JMP Credit Corporation, (iii) excludes amortization
expense related to an intangible asset, (iv) reverses net
unrealized gains and losses on strategic equity investments and
warrants, and (v) assumes an effective tax rate of 42%. In
particular, operating net income adjusts for:
- the grant of 1,931,060 restricted stock
units, or RSUs, at the time of the company’s IPO, which resulted in
no non-cash compensation expense for the quarter ended September
30, 2011 and $0.8 million of non-cash compensation expense for
the nine months ended September 30, 2011;
- the grant of RSUs subsequent to the
company’s IPO, which resulted in non-cash compensation expense of
$0.1 million and $0.4 million for the quarter and nine months ended
September 30, 2011, respectively;
- the non-cash net amortization of
liquidity discounts at JMP Credit, due to scheduled contractual
principal repayments, of $6.4 million and $16.9 million for the
quarter and nine months ended September 30, 2011,
respectively;
- non-cash amortization, in connection
with an intangible asset, of $0.1 million per quarter in certain
periods prior to the quarter ended September 30, 2011;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments in publicly
traded New York Mortgage Trust, Inc. as well as certain warrant
positions; and
- a combined federal, state and local
income tax rate of 42%.
Reconciliations of JMP Group’s net income to the company’s
operating net income for the quarter and nine months ended
September 30, 2011 and for comparable prior periods are set forth
below.
Quarter Ended (in thousands, except per share amounts) Sept.
30, 2011 June 30, 2011 Sept. 30, 2010 Net
(loss)/income attributable to JMP Group Inc. ($1,623 ) $1,518
$1,815 Add back: Income tax (benefit)/expense (1,410 ) 1,281
1,536 Income before taxes (3,033 ) 2,799 3,351 Add
back/(subtract): Compensation expense – IPO-related RSUs - 447 340
Compensation expense – post-IPO RSUs 112 122 392
Net amortization of liquidity discounts on
loans and asset-backed securities issued
6,363 5,746 2,139 Amortization of intangible asset - 100 -
Unrealized loss/(gain) on strategic equity
investments and warrants
1,141 (824 ) 218 Operating income before taxes 4,583 8,390
6,440 Income tax expense (assumed rate of 42%) 1,925
3,524 2,705 Operating net income $2,658 $4,866
$3,735 Operating net income per share: Basic $0.12 $0.22
$0.17 Diluted $0.12 $0.22 $0.17 Weighted average shares
outstanding: Basic 22,354 22,254 21,583 Diluted 22,493 22,613
22,114 Nine Months Ended (in thousands, except per
share amounts) Sept. 30, 2011 Sept. 30, 2010 Net
income attributable to JMP Group Inc. $3,433 $5,749 Add
back: Income tax expense 2,354 5,026 Income before taxes
5,787 10,775 Add back/(subtract): Compensation expense –
IPO-related RSUs 778 2,237 Compensation expense – post-IPO RSUs 360
809
Net amortization of liquidity discounts on
loans and asset-backed securities issued
16,903 5,331 Amortization of intangible asset 200 -
Unrealized (gain)/loss on strategic equity
investments and warrants
(80 ) 787 Operating income before taxes 23,948 19,939 Income
tax expense (assumed rate of 42%) 10,058 8,375 Operating net
income $13,890 $11,564 Operating net income per
share: Basic $0.63 $0.53 Diluted $0.61 $0.52 Weighted
average shares outstanding: Basic 22,152 21,616 Diluted 22,634
22,243
Company management has utilized operating net income on a total
and per share basis, adjusted in the manner described above, as an
additional device to aid in understanding and analyzing JMP Group’s
financial results for the periods presented. Management believes
that operating net income provides useful information by excluding
certain items that may not be representative of the company’s core
operating results or core business activities. Management also
believes that operating net income is a useful measure because it
allows for a better evaluation of the performance of JMP Group’s
ongoing business and facilitates a meaningful comparison of the
company’s results in a given period to those in prior and future
periods.
Adjusted Operating Net Income
Adjusted operating net income excludes from operating net income
the financial contribution of gains recognized by JMP Credit
Corporation due to the sale or payoff of loans originally included
in the portfolio acquired by JMP Group in April 2009. Management
believes that this metric can be instructive to investors who wish
to assess the company’s core earnings over time without regard to a
relatively volatile revenue stream. By excluding profits from sales
and payoffs of acquired loans, management intends to represent the
earnings power of the company’s core business strategy and ongoing
operations.
Reconciliations of the company’s operating net income to its
adjusted operating net income for the quarter and nine months ended
September 30, 2011 and for comparable prior periods are set forth
below.
Quarter Ended (in thousands, except per share amounts) Sept.
30, 2011 June 30, 2011 Sept. 30, 2010
Operating net income $2,658 $4,866 $3,735 Add back: Income
tax expense (assumed rate of 42%) 1,925 3,524 2,705 Operating
income before taxes 4,583 8,390 6,440 Subtract: Earnings
contribution from gains on loan portfolio acquired 597 3,699 4,131
Adjusted operating income before taxes 3,986 4,691 2,309
Income tax expense (assumed rate of 42%) 1,674 1,970 970 Adjusted
operating net income $2,312 $2,721 $1,339 Adjusted operating
net income per share: Basic $0.10 $0.12 $0.06 Diluted $0.10 $0.12
$0.06 Weighted average shares outstanding: Basic 22,354
22,254 21,583 Diluted 22,493 22,613 22,114 Nine
Months Ended (in thousands, except per share amounts) Sept. 30,
2011 Sept. 30, 2010 Operating net income $13,890
$11,564 Add back: Income tax expense (assumed rate of 42%)
10,058 8,375 Operating income before taxes 23,948 19,939
Subtract: Earnings contribution from gains on loan portfolio
acquired 7,775 12,335 Adjusted operating income before taxes 16,173
7,604 Income tax expense (assumed rate of 42%) 6,793 3,194
Adjusted operating net income $9,380 $4,410 Adjusted
operating net income per share: Basic $0.42 $0.20 Diluted $0.41
$0.20 Weighted average shares outstanding: Basic 22,152
21,616 Diluted 22,634 22,243
Segment Reporting
In order to demonstrate the contribution to the company’s
results of each of its primary businesses on a standalone basis,
JMP Group presents the operating net income generated by each
segment in the table that follows. Management believes that this
presentation enables investors to better understand the separate
but interrelated financial operations of the company’s various
business lines and to more accurately assess the contribution of
each to JMP Group’s aggregate results.
Total net revenues have been adjusted, in part, as detailed
above in the section titled “Adjusted Net Revenue,” and the
resulting adjusted net revenues (i) include management fees
eliminated upon consolidation of Harvest Growth Capital, (ii)
exclude the net amortization of liquidity discounts on loans held
and asset-backed securities issued by JMP Credit Corporation, (iii)
exclude amortization expense related to an intangible asset, (iv)
reverse net unrealized gains and losses on strategic equity
investments and warrants and (v) exclude noncontrolling interests
in net unrealized gains and losses on Harvest Growth Capital. Total
non-interest expenses have been adjusted, in part, as detailed
above in the section titled “Operating Net Income,” and the
resulting adjusted non-interest expense reverses stock-based
compensation expense related to equity awards granted both at the
time of JMP Group’s May 2007 initial public offering and
thereafter. For the purposes of calculating operating net income,
an effective tax rate of 42% is assumed.
Statements of JMP Group’s operating net income on a segment
basis for the quarter and nine months ended September 30, 2011 are
set forth below.
Quarter Ended September 30, 2011 (in thousands, except per
share amounts) JMPSecurities HarvestCapitalStrategies
JMPCreditCorp. Corporate Elimin-ations
OperatingJMPGroup HGCConsolid-ation
Consolid-ated JMPGroup Revenues: Investment banking $10,048
- - - - $10,048 - $10,048 Brokerage 6,898 - - - - 6,898 - 6,898
Asset management-related fees (1) 51 $6,489 $305 $130 ($52 ) 6,923
($203 ) 6,720 Principal transactions (2) (789 ) (1,073 ) (11 ) (292
) - (2,165 ) (2,984 ) (5,149 ) Gain on sale and payoff of loans - -
1,373 - - 1,373 - 1,373 Net dividend income 175 - - 147 - 322 - 322
Net interest income (3) (8 ) 170 4,752 (124 ) - 4,790 - 4,790
Provision for loan losses - - (123 ) - -
(123 ) - (123 ) Adjusted net revenues 16,375 5,586
6,296 (139 ) (52 ) 28,066 (3,187 ) 24,879 Expenses:
Non-interest expenses (4) 17,714 4,854 322 522 (52 ) 23,360 16
23,376 Less: Noncontrolling interest (5) - -
123 - - 123 (3,203 ) (3,080 ) Operating
income before taxes (1,339 ) 732 5,851 (661 ) - 4,583 - 4,583
Income tax expense (assumed rate of
42%)
(562 ) 307 2,457 (277 ) - 1,925 -
1,925 Operating net income ($777 ) $425 $3,394
($384 ) - $2,658 - $2,658
Operating net income per share: Basic ($0.03 ) $0.02 $0.15 ($0.02 )
- $0.12 - $0.12 Diluted ($0.03 ) $0.02 $0.15 ($0.02 ) - $0.12 -
$0.12 Reconciliation to Adjusted Operating Net Income
Operating income before taxes $5,851 $4,583 $4,583
Less: Earnings contribution from gain on
loan portfolio acquired
596 596 596
Adjusted operating income before taxes
5,255 3,987 3,987
Income tax expense (assumed rate of
42%)
2,207 1,674 1,674 Adjusted operating net
income $3,048 $2,312 $2,312
Adjusted operating net income per
share:
Basic ($0.03 ) $0.02 $0.13 ($0.02 ) - $0.10 - $0.10 Diluted ($0.03
) $0.02 $0.13 ($0.02 ) - $0.10 - $0.10 (1)
Reflects revenues detailed in section
above titled “Asset Management-Related Fee Revenues;” management
fees of $0.2 million are eliminated upon consolidation of Harvest
Growth Capital.
(2) Reverses net unrealized gains and losses on strategic
equity investments and warrants and excludes noncontrolling
interests in net unrealized gains and losses related to Harvest
Growth Capital; net unrealized losses of $3.0 million are
recognized upon consolidation of the fund. (3) Excludes
expense related to the non-cash net amortization of liquidity
discounts at JMP Credit Corporation and amortization expense
related to an intangible asset. (4) Reverses stock-based
compensation expense and excludes fund-related expenses of $16,000
that are recognized upon consolidation of Harvest Growth Capital.
(5) Excludes noncontrolling interests of $3.2 million in the
net loss of Harvest Growth Capital that are recognized upon
consolidation of the fund. Nine Months Ended
September 30, 2011 (in thousands, except per share amounts)
JMPSecurities HarvestCapitalStrategies JMPCreditCorp.
Corporate Elimin-ations OperatingJMPGroup
HGCConsolid-ation Consolid-ated JMPGroup
Revenues: Investment banking $40,332 - - - - $40,332 -
$40,332 Brokerage 19,370 - - - - 19,370 - 19,370 Asset
management-related fees (1) 155 $17,392 $763 $130 ($403 ) 18,037
($609 ) 17,428 Principal transactions (2) 324 201 (320 ) (171 ) -
34 (219 ) (185 ) Gain on sale and payoff of loans - - 14,981 - -
14,981 - 14,981 Net dividend income 487 - - 383 - 870 - 870 Net
interest income (3) 130 189 16,524 (401 ) - 16,442 - 16,442
Provision for loan losses - - (477 ) - - (477 ) -
(477 ) Adjusted net revenues 60,798 17,782 31,471 (59 ) (403
) 109,589 (828 ) 108,761 Expenses: Non-interest expenses (4)
55,680 14,806 7,755 7,400 (403 ) 85,238 51 85,289 Less:
Noncontrolling interest (5) - - 403 - - 403
(879 ) (476 ) Operating income before taxes 5,118 2,976
23,313 (7,459 ) - 23,948 - 23,948
Income tax expense (assumed rate of
42%)
2,149
1,250
9,791
(3,132
) - 10,058 - 10,058 Operating net
income $2,969 $1,726 $13,522 ($4,327 ) - $13,890
- $13,890 Operating net income per
share: Basic $0.13 $0.08 $0.62 ($0.20 ) - $0.63 - $0.63 Diluted
$0.13 $0.08 $0.59 ($0.19 ) - $0.61 - $0.61 Reconciliation to
Adjusted Operating Net Income Operating income before taxes
$23,313 $23,948 $23,948
Less: Earnings contribution from gain on
loan portfolio acquired
7,775
7,775
7,775
Adjusted operating income before taxes
15,538 16,173 16,173
Income tax expense (assumed rate of
42%)
6,526 6,793 6,793 Adjusted operating net
income $9,012 $9,380 $9,380
Adjusted operating net income per
share:
Basic $0.13 $0.08 $0.41 ($0.20 ) - $0.42 - $0.42 Diluted $0.13
$0.08 $0.39 ($0.19 ) - $0.41 - $0.41 (1)
Reflects revenues detailed in section
above titled “Asset Management-Related Fee Revenues;” management
fees of $0.6 million are eliminated upon consolidation of Harvest
Growth Capital.
(2) Reverses net unrealized gains and losses on strategic
equity investments and warrants and excludes noncontrolling
interests in net unrealized gains and losses related to Harvest
Growth Capital; net unrealized losses of $0.2 million are
recognized upon consolidation of the fund. (3) Excludes
expense related to the non-cash net amortization of liquidity
discounts at JMP Credit Corporation and amortization expense
related to an intangible asset. (4) Reverses stock-based
compensation expense and excludes fund-related expenses of $51,000
that are recognized upon consolidation of Harvest Growth Capital.
(5) Excludes noncontrolling interests of $0.9 million in the
net loss of Harvest Growth Capital that are recognized upon
consolidation of the fund.
Adjusted Tangible Book Value per Share
At September 30, 2011, JMP Group’s tangible book value per share
was $5.80, compared to $5.91 at June 30, 2011 and $5.57 at
September 30, 2010. Adjusting book value to reflect the net
liquidity discount on JMP Credit Corporation’s loan portfolio and
asset-backed securities issued, JMP Group’s adjusted tangible book
value per share at September 30, 2011 would have been $4.78, as
indicated by the table below.
(in thousands, except per share amounts) Sept. 30, 2011
June 30, 2011 Sept. 30, 2010 Total JMP Group
stockholders' equity $128,448 $132,360 $122,124 Goodwill and
intangible assets - - (1,000 ) Tangible stockholders'
equity 128,448 132,360 121,124 Liquidity discount on loans
18,392 20,880 51,603 Liquidity discount on asset-backed securities
issued (57,284 ) (64,923 ) (86,836 ) Net liquidity discount (38,892
) (44,043 ) (35,233 ) Income tax benefit (assumed rate of 42%)
16,335 18,498 14,798 Net after-tax liquidity
discount (22,557 ) (25,545 ) (20,435 ) Adjusted tangible
stockholders' equity $105,891 $106,815 $100,689
Adjusted tangible book value per share $4.78
$4.77 $4.63 Basic shares outstanding 22,147
22,388 21,733 Quarterly operating ROATE* 10.0 % 18.2 % 14.6
% LTM operating ROATE* 21.5 % 22.6 % 17.0 %
Quarterly operating ROATE* excluding the
financial impact of gains on acquired loans
8.7 % 10.2 % 5.2 %
LTM operating ROATE* excluding the
financial impact of gains on acquired loans
13.0 % 12.1 % 6.8 % * Return on adjusted tangible equity =
annualized operating net income / average adjusted tangible
stockholders' equity.
Share Repurchase Activity
During the quarter, JMP Group repurchased 262,931 shares of its
common stock on the open market at an average price of $6.53 per
share, or $1.7 million in total. At quarter-end, approximately
300,000 shares remained eligible for repurchase under the company’s
existing repurchase authorization.
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
or in its small business lending portfolio; 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 particular quarter depending upon the
amount and sorts 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 potential for market
share gains and outcomes of strategic initiatives. 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, 2010 as filed with the Securities and
Exchange Commission on March 8, 2011, 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, 2010 and all other periodic reports are available on JMP
Group’s website at www.jmpg.com and on the Securities and Exchange
Commission’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.
Conference Call
JMP Group will hold a conference call to discuss the results
detailed herein at 10:00 a.m. EDT on Wednesday, October 26, 2011.
To participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
21452816.
The conference call will also be broadcast live over the
Internet and will be accessible via a link in the investor
relations section of the company’s website, at
investor.jmpg.com/events.cfm. The Internet broadcast will be
archived and will remain available on the website for future
replay.
About JMP Group
JMP Group Inc. is a full-service investment banking and 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 Advisors. For more information, visit
www.jmpg.com.
(in thousands) Sept. 30, 2011 Dec. 31, 2010
Assets Cash and cash equivalents $67,720 $71,114 Restricted cash
and deposits 31,829 47,718 Receivable from clearing broker 2,009
1,331 Marketable securities owned, at fair value 24,781 23,748
Other investments 47,927 38,702 Loans held for sale 2,943 - Loans
held for investment, net of allowance for loan losses - 813
Loans collateralizing asset-backed
securities issued, net of purchase discounts and allowance for loan
losses
427,028 400,763 Small business loans, net of allowance for loan
losses 1,953 - Deferred tax assets 24,279 32,507 Other assets
16,493 21,169 Total assets $646,962 $637,865 Liabilities and
Stockholders' Equity Liabilities: Marketable securities
sold, but not yet purchased, at fair value $10,958 $10,669 Accrued
compensation 32,988 37,424 Asset-backed securities issued, net of
purchase discounts 373,719 351,322 Note payable 21,406 26,209
Deferred tax liability 26,329 36,176 Other liabilities 33,969
34,013 Total liabilities 499,369 495,813 Redeemable
noncontrolling interest 11 - Stockholders' Equity: Total JMP
Group Inc. stockholders' equity 128,448 130,596 Noncontrolling
interest 19,134 11,456 Total equity 147,582 142,052 Total
liabilities and stockholders' equity $646,962 $637,865
Quarter Ended Nine Months Ended (in thousands, except
per share amounts) Sept. 30, 2011 Sept. 30, 2010 Sept. 30,
2011 Sept. 30, 2010 Revenues: Investment banking
$10,048 $12,332 $40,332 $28,436 Brokerage 6,898 5,895 19,370 21,255
Asset management fees 5,694 3,283 14,893 9,316 Principal
transactions (6,290 ) 1,055 (106 ) 2,887 Gain on sale and payoff of
loans 1,373 6,990 14,981 26,231 Net dividend income 322 357 870
1,472 Other income 1,026 292 2,536 1,095
Non-interest revenues 19,071 30,204 92,876
90,692 Interest income 7,451 11,502 25,799
36,083 Interest expense (9,024 ) (8,539 ) (26,460 ) (25,089 ) Net
interest (expense)/income (1,573 ) 2,963 (661 ) 10,994
Provision for loan losses (123 ) (509 ) (477 ) (964 )
Total net revenues 17,375 32,658 91,738
100,722 Non-interest expenses: Compensation and
benefits 15,970 19,361 66,218 65,474 Administration 2,246 1,328
5,060 4,324 Brokerage, clearing and exchange fees 1,275 1,177 3,552
3,752 Travel and business development 1,107 711 2,568 2,632
Communications and technology 1,013 990 2,929 3,136 Occupancy 774
672 2,216 1,994 Professional fees 806 818 2,311 2,606 Depreciation
192 158 529 495 Impairment loss on intangible asset - 2,750 700
2,750 Other 105 137 343 479 Total
non-interest expenses 23,488 28,102 86,426
87,642 (Loss)/income before income tax expense (6,113
) 4,556 5,312 13,080 Income tax (benefit)/expense (1,410 ) 1,536
2,354 5,026 Net (loss)/income (4,703 ) 3,020
2,958 8,054 Less: Net (loss)/income attributable to noncontrolling
interest (3,080 ) 1,205 (475 ) 2,305 Net
(loss)/income attributable to JMP Group Inc. ($1,623 ) $1,815
$3,433 $5,749 Net (loss)/income
attributable to JMP Group Inc. per share: Basic ($0.07 ) $0.08
$0.15 $0.27 Diluted ($0.07 ) $0.08 $0.15 $0.26 Weighted
average common shares outstanding: Basic 22,354 21,583 22,152
21,616 Diluted 22,493 22,114 22,634 22,243
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