JMP Group Inc. (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter ended March 31, 2012.
- Operating net income was $4.5 million,
or $0.19 per diluted share, compared to $3.2 million, or $0.15 per
share, for the prior quarter and $6.4 million, or $0.28 per share,
for the first quarter of 2011.
- 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
$0.18 per diluted share, an increase of 28.6% from $0.14 for the
prior quarter and a decrease of 5.3% from $0.19 per share for the
first quarter of 2011. For more information on operating net income
and adjusted operating net income, including a reconciliation to
net income, please see the section below titled “Non-GAAP Financial
Measures.”
- Net income attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $0.4
million, or $0.02 per diluted share, compared to $3.5 million,
or $0.15 per share, for the first quarter of 2011.
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were $35.2
million, compared to $25.9 million for the prior quarter and $45.0
million for the first quarter of 2011. Further excluding net gains
on the sale or payoff of acquired loans, adjusted net revenues
would have been $34.5 million, an increase of 33.9% from $25.8
million for the prior quarter and a decrease of 11.9% from $39.2
million for the first quarter of 2011. 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
$31.4 million, compared to $19.6 million for the prior quarter and
$42.9 million for the first quarter of 2011.
“We enjoyed better-than-expected first quarter results,” said
Chairman and Chief Executive Officer Joe Jolson, “driven both by
investment banking activity that improved from the preceding few
quarters and by excellent investment results from our hedge funds.
Adjusted operating EPS, which excludes acquired loan sale profits,
was $0.18, up almost 30% from the prior period and nearly matching
the $0.19 we earned for the first quarter of last year, when we
produced record adjusted net revenues. JMP Securities contributed
$0.09 to adjusted operating earnings per share, below the record
$0.13 earned a year ago but a significant improvement from the
levels seen during the second half of 2011. Harvest Capital
Strategies earned $0.04 for the quarter, nearly double the number
from a year earlier, while JMP Credit again produced strong
results, adding $0.13 per share on an adjusted operating basis,
versus $0.14 for the first quarter of 2011. We are off to a strong
start to the year but remain cautiously optimistic, given the
volatile macro environment.”
Revenues
Investment Banking
Investment banking revenues were $16.7 million, an increase of
188.1% from $5.8 million for the prior quarter and a decrease of
17.6% from $20.2 million for the first quarter of 2011.
The company executed 35 investment banking transactions during
the first quarter of 2012, compared to 30 during the first quarter
of 2011. Public equity underwriting revenues amounted to
$9.0 million, down from $12.3 million, as the company
executed 23 public equity offerings, in line with 23 in the first
quarter of 2011. Debt and convertible securities transaction
revenues were $1.5 million, down from $5.3 million, as a result of
five transactions, versus two in the first quarter of 2011. Private
capital markets and other revenues were $2.2 million, up from
$1.6 million, with the company executing two transactions, versus
three in the first quarter of 2011. Strategic advisory revenues
totaled $4.0 million, up from $1.1 million, with the
company acting as a strategic advisor on five completed
transactions, compared to two in the first quarter of 2011.
Brokerage
Net brokerage revenues were $5.5 million, a decrease of 9.8%
from $6.1 million for the prior quarter and a decrease of 12.6%
from $6.3 million for the first quarter of 2011.
Asset Management
Asset management fees and other related revenues totaled $4.5
million, a decrease of 33.6% from $6.8 million for the prior
quarter and an increase of 8.6% from $4.2 million for the
first quarter of 2011. For more information on asset
management-related fee revenues, please see the section below
titled “Non-GAAP Financial Measures.”
Client assets under management at March 31, 2012 totaled $1.2
billion, including $679.2 million of funds managed by Harvest
Capital Strategies and $471.2 million par value of loans and cash
underlying the collateralized loan obligation managed by JMP Credit
Advisors. Client assets under management were $1.2 billion at
December 31, 2011 and $1.3 billion at March 31, 2011. Including
sponsored funds, client assets under management totaled
$2.1 billion at March 31, 2012, compared to $2.2 billion at
December 31, 2011 and $2.0 billion at March 31, 2011. Private
capital, including corporate credit, small business lending, REIT
advisory services, venture capital and distressed mortgage
investments, represented 47.4% of total sponsored assets under
management at March 31, 2012.
Principal Transactions
Principal transactions generated net revenues of $6.5 million,
an increase of 276.8% from $1.7 million for the prior quarter and
an increase of 78.6% from $3.6 million for the first quarter
of 2011.
A statement of the company’s principal transaction revenues for
the quarter ended March 31, 2012 and for comparable prior
periods is set forth below.
Quarter Ended (in thousands) Mar. 31, 2012
Dec. 31, 2011 Mar. 31, 2011 Hedge fund investments $
2,744 $ 1,244 $ 667 Principal
investments: Investment in New York Mortgage Trust (209 ) 344 158
Other principal investments (110 ) (39
)
(281 ) Total principal investments (319 ) 305
(123 ) Venture investments: Investment in
Harvest Growth Capital 197 (53 ) 92 Other venture investments and
warrants 502 (89 ) 350 Total
venture investments 699 (142 ) 442
Principal transaction revenues net of
non-controlling interest in Harvest Growth Capital
3,124 1,407 986
Non-controlling interest in Harvest Growth Capital 3,360
314 2,644 Total principal
transaction revenues $ 6,484 $ 1,721 $ 3,630
Of the $6.5 million of principal transaction revenues for the
quarter ended March 31, 2012, $3.4 million was
attributable to non-controlling interests in net realized and
unrealized gains 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 just 4.7% of the fund. The presentation of adjusted net revenues
elsewhere in this press release excludes non-controlling interests
in Harvest Growth Capital; and, accordingly, the aforementioned
$3.4 million of net realized and unrealized gains for the
first quarter of 2012 is not included in adjusted net revenues. Net
of non-controlling interests, JMP Group had a net realized and
unrealized gain of $0.2 million on its investment in Harvest
Growth Capital for the quarter. 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 net gains of $1.0 million due to
the sale or payoff of 20 of the loans in its portfolio, compared to
$6.8 million in connection with 39 loans during the first quarter
of 2011. For the first quarter of 2012, realized gains of $0.7
million were due to the sale or payoff of loans acquired with JMP
Credit in April 2009, compared to gains of $5.8 million for the
first quarter of 2011. At March 31, 2012, 10 loans with an
aggregate par value of $42.1 million and an associated liquidity
discount of $13.9 million remained from the portfolio acquired
in April 2009.
A loan loss provision of $0.3 million was recorded for the
quarter as a general reserve in connection with performing loans at
JMP Credit and Harvest Capital Credit, both of which are currently
consolidated under GAAP. At March 31, 2012, general loan loss
reserves equaled 0.6% of gross performing loans, compared to 0.4%
at March 31, 2011.
At March 31, 2012, gross impaired loans totaled $10.5 million,
or 2.3% of gross loans outstanding, compared to $7.2 million, or
1.6% of gross loans outstanding, at March 31, 2011. With
regard to impaired loans at March 31, 2012, discounts and reserves
(including credit discounts, liquidity discounts, allowances for
loan losses and deferred loan fees) equaled $9.6 million, or 91.0%
of gross impaired loans outstanding. With regard to performing
loans at March 31, 2012, discounts and reserves (including
liquidity discounts, allowances for loan losses and deferred loan
fees) equaled $28.2 million, or 6.3% of gross performing loans
outstanding.
Net Interest Income
Interest income was $7.5 million, and interest expense was $9.6
million, resulting in net interest expense of $2.2 million,
compared to net interest income of $2.0 million for the first
quarter of 2011. Excluding net amortization expense related to
liquidity discounts, net interest income was $5.0 million for the
quarter, compared to $6.8 million for the quarter ended March 31,
2011.
Expenses
Compensation and Benefits
Compensation and benefits expense was $21.8 million, compared to
$28.2 million for the first quarter of 2011. For the first quarter
of 2012, there was no non-cash compensation expense attributable to
restricted stock units, or RSUs, granted in connection with JMP
Group’s May 2007 initial public offering, as the remaining expense
completely amortized in the first half of 2011 with the vesting of
the final tranche of IPO-related RSUs. For the first quarter of
2011, non-cash compensation expense attributable to IPO-related
RSUs was $0.3 million. For the first quarter of 2012, non-cash
compensation expense attributable to performance-related and other
RSUs granted subsequent to the company’s IPO was $0.2 million,
compared to $0.1 million for the first quarter of 2011.
As a percentage of adjusted net revenues, compensation and
benefits expense was 61.9%, compared to 62.8% for the first quarter
of 2011. Excluding the cost of RSU grants, compensation and
benefits expense was 61.3% of adjusted net revenues, compared to
61.8% for the first quarter of 2011.
Non-Compensation Expense
Non-compensation expense was $5.7 million, compared to $6.1
million for the first quarter of 2011. As a percentage of adjusted
net revenues, non-compensation expense was 16.1%, compared to 13.6%
for the first quarter of 2011.
Personnel
At March 31, 2012, the company had 208 full-time employees,
compared to 217 at the end of the prior quarter and 209 at March
31, 2011.
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 asset management fees, net interest income or expense, and
other revenues eliminated upon the consolidation of Harvest Growth
Capital and Harvest Capital Credit, (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
loan loss provisions taken in connection with Harvest Capital
Credit, (v) reverses net unrealized gains and losses on strategic
equity investments and warrants and (iv) excludes the
non-controlling interest in net unrealized gains and losses on
Harvest Growth Capital. In particular, adjusted net revenue adjusts
for:
- base management and incentive fees
earned by Harvest Capital Strategies as manager of Harvest Growth
Capital, a venture capital fund, and Harvest Capital Credit, a
small business lending strategy; Harvest Capital Strategies is
managing member of Harvest Growth Capital and the external manager
of Harvest Capital Credit; and, as a result of its ownership of
each, JMP Group consolidates both entities in accordance with GAAP
accounting standards and eliminates the fees in consolidation;
presenting these fees as though Harvest Growth Capital and Harvest
Capital Credit were deconsolidated presents the entities’ results
in a manner similar to those of the other investment funds managed
by Harvest Capital Strategies;
- the non-cash net amortization of
liquidity discounts at JMP Credit, due to scheduled contractual
principal repayments, of $7.2 million for the quarter ended
March 31, 2012;
- 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;
- the non-cash general loan loss
provision of $0.2 million taken with regard to Harvest Capital
Credit for the quarter ended March 31, 2012;
- 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
- the non-controlling interest 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.
Additionally, management considers it instructive to further
adjust the company’s adjusted net revenues to exclude 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, a volatile source of revenue
that cannot be expected to recur indefinitely.
A reconciliation of JMP Group’s net revenues to the company’s
adjusted net revenues for the quarter ended March 31, 2012 and for
comparable prior periods is set forth below.
Quarter Ended (in thousands) Mar. 31, 2012
Dec. 31, 2011 Mar. 31, 2011
Revenues: Non-interest revenues $ 33,508 $ 21,353 $ 40,922 Net
interest income (2,150 ) (1,730 ) 1,980
Total net revenues 31,358 19,623 42,902
Asset management fees earned on Harvest
Growth Capital and Harvest Capital Credit
332 150 203
Net interest expense and other revenues
from Harvest Capital Credit
(208 ) - -
Total net revenues including fee revenues
from consolidated entities
31,482 19,773 43,105
Add back/(subtract):
Net amortization of liquidity discounts on
loans and asset-backed securities issued
7,175 6,619 4,794 Amortization of intangible asset - - 100 Loan
loss provision – Harvest Capital Credit 219 184 -
Net unrealized (gain) on strategic equity
investments and warrants
(321 ) (361 ) (397 )
Non-controlling interest in net unrealized
(gain) on Harvest Growth Capital
(3,360 ) (314 ) (2,644 ) Adjusted net revenues
35,195 25,901 44,958
Subtract: Net gain on loan portfolio acquired 707
143 5,798
Adjusted net revenues excluding net gain
on loan portfolio acquired
$ 34,488 $ 25,758 $ 39,160
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 non-controlling
interests and loan sale gains that may otherwise obscure the
company’s operating revenues and complicate an assessment of the
company’s core business activities. Management believes that
adjusting net revenue in these ways is useful in that 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 fee 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 fee revenues incorporate base management and
incentive fees earned by Harvest Capital Strategies as manager of
Harvest Growth Capital and Harvest Capital Credit. JMP Group
consolidates Harvest Growth Capital and Harvest Capital Credit in
accordance with GAAP accounting standards; however, asset
management fees generated by the funds are included in asset
management-related fee revenues as though deconsolidated.
A statement of the company’s asset management-related fee
revenues for the quarter ended March 31, 2011 and for
comparable prior periods is set forth below.
Quarter Ended (in thousands) Mar 31, 2012 Dec.
31, 2011 Mar. 31, 2011 Base management fees: Fees
reported as asset management fees $ 2,438 $ 2,600 $ 2,273 Fees
reported as other income 708 924 418
Fees earned at Harvest Growth Capital and
Harvest Capital Credit
201 150 203 Total base management fees
3,347 3,674 2,894 Incentive fees: Fees
reported as asset management fees 1,036 2,292 879 Fees reported as
other income - - 350
Fees earned at Harvest Growth Capital and
Harvest Capital Credit
131 - - Total incentive fees 1,167
2,292 1,229 Fundraising fees reported as other
income 27 876 60 Asset
management-related fee revenues: All fees reported as asset
management fees 3,474 4,892 3,152 All fees reported as other income
735 1,800 828
All fees earned at Harvest Growth Capital
and Harvest Capital Credit
332 150 203 Total asset management-related fee
revenues $ 4,541 $ 6,842 $ 4,183
Company management has utilized asset management-related fee
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 fee 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 fee revenue is a more meaningful measure than
standalone asset management fees as reported, because asset
management-related fee 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 loan loss
provisions taken in connection with Harvest Capital Credit, (v)
reverses net unrealized gains and losses on strategic equity
investments and warrants, and (vi) 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 March 31,
2012 and $0.3 million of non-cash compensation expense for the
quarter ended March 31, 2011;
- the grant of RSUs subsequent to the
company’s IPO, which resulted in non-cash compensation expense of
$0.2 million for the quarter ended March 31, 2012 and
$0.1 million for the quarter ended March 31, 2011;
- the non-cash net amortization of
liquidity discounts at JMP Credit, due to scheduled contractual
principal repayments, of $7.2 million for the quarter ended March
31, 2012 and $4.8 million for the quarter ended March 31,
2011;
- 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;
- the non-cash general loan loss
provision of $0.1 million, after $0.1 million of income tax expense
and non-controlling interest, for the quarter ended March 31, 2012
taken with regard to Harvest Capital Credit;
- 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 ended March 31, 2012 and for
comparable prior periods are set forth below.
Quarter Ended (in thousands, except per share
amounts) Mar. 31, 2012 Dec. 31, 2011
Mar. 31, 2011 Net income/(loss) attributable
to JMP Group Inc. $ 352 ($5,944 ) $ 3,538 Add back: Income
tax expense/(benefit) 322 (4,024 )
2,484 Income/(loss) before taxes 674 (9,968 ) 6,022
Add back/(subtract): Compensation expense – IPO-related RSUs - -
331 Compensation expense – post-IPO RSUs 180 9,166 126
Net amortization of liquidity discounts on
loans and asset-backed securities issued
7,175 6,619 4,794 Amortization of intangible asset - - 100 Loan
loss provision – Harvest Capital Credit 94 88 -
Unrealized (gain) on strategic equity
investments and warrants
(321 ) (361 ) (397 ) Operating income before
taxes 7,802 5,544 10,976 Income tax expense (assumed rate of
42%) 3,277 2,328 4,610
Operating net income $ 4,525 $ 3,216 $ 6,366
Operating net income per share: Basic $ 0.20 $ 0.15 $ 0.29
Diluted $ 0.19 $ 0.15
(1
)
$ 0.28 Weighted average shares outstanding: Basic 22,180
22,016 21,843 Diluted 23,273 22,174
(1
)
22,836
(1)
Weighted average diluted share count
indicated is a non-GAAP measure. Due to the vesting in the first
quarter of 2012 of performance-related RSUs resulting from the
achievement of adjusted operating EPS objectives for 2011, GAAP
requires that not only the related compensation expense but also
the increase in diluted shares be reflected as fourth quarter 2011
events, irrespective of the fact that the vesting does not take
place until the first quarter of 2012, at which time it increases
the weighted average number of basic shares outstanding. On a GAAP
basis, the weighted average number of diluted shares outstanding
for the quarter ended December 31, 2011 was 22,796,939, and
operating net income per diluted share using this denominator would
be $0.14. Management has presented a non-GAAP share count for the
period, which is in keeping with the calculation of the weighted
average number of diluted shares in quarters not impacted by the
vesting of performance-related RSUs.
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. Moreover, the company utilizes adjusted operating net
income as a threshold for the vesting of its performance-related
RSUs.
Reconciliations of the company’s operating net income to its
adjusted operating net income for the quarter ended March 31, 2012
and for comparable prior periods are set forth below.
Quarter Ended (in thousands, except per share
amounts) Mar. 31, 2012 Dec. 31, 2011
Mar. 31, 2011 Operating net income $4,525 $3,216 $6,366
Add back: Income tax expense (assumed rate of 42%) 3,277
2,328 4,610 Operating income before taxes 7,802 5,544 10,976
Subtract: Earnings contribution from gains on loan portfolio
acquired 424 87 3,479 Adjusted operating income before taxes 7,378
5,457 7,497 Income tax expense (assumed rate of 42%) 3,099
2,292 3,149 Adjusted operating net income $4,279 $3,165 $4,348
Adjusted operating net income per share: Basic $0.19 $0.14
$0.20 Diluted $0.18 $0.14
(1
)
$0.19 Weighted average shares outstanding: Basic 22,180
22,016 21,843 Diluted 23,273 22,174
(1
)
22,836
(1)
Weighted average diluted share count
indicated is a non-GAAP measure. Due to the vesting in the first
quarter of 2012 of performance-related RSUs resulting from the
achievement of adjusted operating EPS objectives for 2011, GAAP
requires that not only the related compensation expense but also
the increase in diluted shares be reflected as fourth quarter 2011
events, irrespective of the fact that the vesting does not take
place until the first quarter of 2012, at which time it increases
the weighted average number of basic shares outstanding. On a GAAP
basis, the weighted average number of diluted shares outstanding
for the quarter ended December 31, 2011 was 22,796,939, and
adjusted operating net income per diluted share using this
denominator would be $0.14. Management has presented a non-GAAP
share count for the period, which is in keeping with the
calculation of the weighted average number of diluted shares in
quarters not impacted by the vesting of performance-related
RSUs.
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 asset management fees,
net interest income or expense, and other revenues eliminated upon
the consolidation of Harvest Growth Capital and Harvest Capital
Credit, (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 loan loss provisions taken in
connection with Harvest Capital Credit; (v) reverse net unrealized
gains and losses on strategic equity investments and warrants and
(vi) exclude non-controlling 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.
A statement of JMP Group’s operating net income on a segment
basis for the quarter ended March 31, 2012 is set forth
below.
Quarter Ended March 31, 2012 Harvest
JMP
Operating HGC HCC
Consoli- JMP Capital Credit Elimin- JMP Consoli- Consoli- dated JMP
(in thousands, except per share amounts) Securities
Strategies Corp. Corporate ations Group dation dation
Group Revenues: Investment banking $ 16,713 - - - - $ 16,713
- ($54 ) $ 16,659 Brokerage 5,492 - - - - 5,492 - - 5,492
Asset management-related fees (1)
26 $ 4,592 $ 39 $ 55 ($170 ) 4,542 ($238 ) (94 ) 4,210
Principal transactions (2)
1,468 1,521 183 (278 ) - 2,894 3,360 (92 ) 6,162 Gain on sale and
payoff of loans - - 990 - - 990 - - 990 Net dividend income (14 ) -
- - - (14 ) - - (14 )
Net interest income (3)
48 4 4,608 11 - 4,671 - 354 5,025
Provision for loan losses (4)
- - (93 ) - -
(93 ) - - (93 ) Adjusted net revenues
23,733 6,117 5,727 (212 ) (170 ) 35,195 3,122 114 38,431
Expenses:
Non-interest expenses (5)
20,274 4,606 (234 ) 2,727 (170 ) 27,203 21 42 27,266
Less: Non-controlling interest (6)
- - 136 - -
136 3,101 126 3,363
Operating income before taxes 3,459 1,511 5,825 (2,939 ) - 7,856 -
(54 ) 7,802
Income tax expense (assumed rate of
42%)
1,453 635 2,446 (1,234 )
- 3,300 - (23 ) 3,277
Operating net income $ 2,006 $ 876 $ 3,379
($1,705 ) - $ 4,556 - ($31 ) $ 4,525
Operating net income per share: Basic $ 0.09 $ 0.04 $ 0.15
($0.07 ) - $ 0.21 - ($0.01 ) $ 0.20 Diluted $ 0.09 $ 0.04 $ 0.14
($0.07 ) - $ 0.20 - ($0.01 ) $ 0.19 Reconciliation to
Adjusted Operating Net Income Operating income before taxes
$ 5,825 $ 7,856 $ 7,802
Less: Earnings contribution from gain on
loan portfolio acquired
424 424 424
Adjusted operating income before taxes
5,401 7,432 7,378
Income tax expense (assumed rate of
42%)
2,268 3,121 3,099
Adjusted operating net income $ 3,133 $ 4,311 $ 4,279
Adjusted operating net income per
share:
Basic $ 0.09 $ 0.04 $ 0.14 ($0.07 ) - $ 0.20 - ($0.01 ) $ 0.19
Diluted $ 0.09 $ 0.04 $ 0.13 ($0.07 ) - $ 0.19 - ($0.01 ) $ 0.18
(1)
Reflects revenues detailed in section
above titled “Asset Management-Related Fee Revenues;” management
fees totaling $0.3 million are eliminated upon consolidation of
Harvest Growth Capital and Harvest Capital Credit.
(2)
Reverses net unrealized gains and losses
on strategic equity investments and warrants and excludes
non-controlling interests in net realized and unrealized gains and
losses related to Harvest Growth Capital as well as other principal
transaction revenues related to Harvest Capital Credit; net
realized and unrealized gains totaling $3.3 million are recognized
upon consolidation of the entities.
(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)
Excludes general loan loss provision at
Harvest Capital Credit in the amount of $0.2 million.
(5)
Reverses stock-based compensation expense
and excludes fund-related expenses totaling $63,000 that are
recognized upon consolidation of Harvest Growth Capital and Harvest
Capital Credit.
(6)
Excludes non-controlling interests
totaling $3.2 million in the net realized and unrealized gains of
Harvest Growth Capital and Harvest Capital Credit that are
recognized upon consolidation of the entities.
Adjusted Tangible Book Value per Share
At March 31, 2012, JMP Group’s tangible book value per share was
$5.52, compared to $5.74 at December 31, 2011 and $6.01 at
March 31, 2011. Adjusting book value to reflect the net benefit of
vesting of performance-related RSUs as well as 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 March 31, 2012 would have been $4.82, as
indicated by the table below.
(in thousands, except per share amounts) Mar. 31,
2012 Dec. 31, 2011 Mar. 31, 2011
Total JMP Group stockholders' equity $ 125,871 $ 129,706 $ 132,766
Less: Net benefit of vesting of performance-related RSUs (1)
- (3,642 ) - JMP Group stockholders'
equity, net of RSU benefit 125,871 126,064 132,766 Less: Goodwill
and intangible assets - - (100 )
Tangible stockholders' equity 125,871 126,064 132,666
Liquidity discount on loans 13,894 15,738 28,949 Liquidity discount
on asset-backed securities issued (41,392 ) (49,447 )
(72,383 ) Net liquidity discount (27,498 ) (33,709 ) (43,434
) Income tax benefit (assumed rate of 42%) 11,549
14,158 18,242 Net after-tax liquidity
discount (15,949 ) (19,551 ) (25,192 )
Adjusted tangible stockholders' equity $ 109,922 $ 106,513
$ 107,474 Adjusted tangible book value per
share $ 4.82 $ 4.85 $ 4.87 Basic shares
outstanding 22,812 21,947 22,084 Quarterly operating ROATE
(2) 16.7 % 12.1 % 24.1 % LTM operating ROATE (2) 14.2 % 16.1 % 22.2
%
Quarterly operating ROATE (2) excluding
the financial impact of gains on acquired loans
15.8 % 11.9 % 16.4 %
LTM operating ROATE (2) excluding the
financial impact of gains on acquired loans
11.6 % 11.8 % 10.4 %
(1)
Due to the vesting in the first quarter of
2012 of performance-related RSUs resulting from the achievement of
adjusted operating EPS objectives for 2011, GAAP requires that the
related compensation expense be reflected in the fourth quarter of
2011, the period in which the objectives were met and the vesting
was triggered. The increased expense lowers pre-tax earnings and
creates a tax benefit, which adds to net income and, consequently,
to stockholders’ equity. In this table, JMP Group has reversed the
net benefit of the vesting for the purposes of calculating tangible
stockholders’ equity, in order to exclude the financial impact of
an event that is not core to the company’s operating
activities.
(2)
Return on adjusted tangible equity equals
annualized operating net income divided by average adjusted
tangible stockholders’ equity.
Share Repurchase Activity
During the quarter ended March 31, 2012, JMP Group repurchased
597,143 shares of its common stock at an average price of $7.08 per
share, or $4.2 million in total. Substantially all such shares were
repurchased in connection with the vesting of restricted stock
units or other stock-based compensation, whereby employees tendered
shares for the payment of applicable withholding taxes. At
quarter-end, approximately 500,000 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 may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements provide JMP Group’s current
expectations or forecasts about future events, including beliefs,
plans, objectives, intentions, assumptions and other statements
that are not historical facts. Forward-looking statements are
subject to known and unknown risks and uncertainties that could
cause actual results to differ materially from those expected or
implied by the forward-looking statements. The company’s actual
results could differ materially from those anticipated in
forward-looking statements for many reasons, including the factors
described in the sections entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in the company’s Form 10-K for the year ended December
31, 2011 s filed with the Securities and Exchange Commission on
March 12, 2012 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, 2011 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, April 25, 2012. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
72891887.
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.
JMP GROUP INC.
Consolidated Statements of Financial
Condition
(Unaudited)
(in thousands) Mar. 31, 2012 Dec. 31,
2011 Assets Cash and cash equivalents $46,695 $70,363
Restricted cash and deposits 58,968 48,440 Receivable from clearing
broker 1,290 1,138 Marketable securities owned, at fair value
24,107 24,309 Other investments 66,153 51,706 Loans held for sale
2,599 2,957
Loans collateralizing asset-backed
securities issued, net of purchase discounts and allowance for loan
losses
411,740 410,770 Small business loans, net of allowance for loan
losses 13,483 7,477 Deferred tax assets 23,601 26,221 Other assets
16,325 17,240 Total assets $664,961 $660,621 Liabilities and
Stockholders' Equity Liabilities: Marketable securities
sold, but not yet purchased, at fair value $19,888 $10,921 Accrued
compensation 14,737 38,143 Asset-backed securities issued, net of
purchase discounts 389,612 381,556 Note payable 17,038 19,222 Note
payable – line of credit funding 7,737 - Deferred tax liability
20,915 23,214 Other liabilities 29,608 31,081 Total liabilities
499,535 504,137 Redeemable non-controlling interest 87 50
Stockholders' Equity: Total JMP Group Inc. stockholders'
equity 125,871 129,705 Non-redeemable non-controlling interest
39,468 26,729 Total equity 165,339 156,434 Total liabilities and
stockholders' equity $664,961 $660,621
JMP GROUP INC.
Consolidated Statements of
Operations
(Unaudited)
Quarter Ended (in thousands, except per share
amounts) Mar. 31, 2012 Mar. 31, 2011 Revenues:
Investment banking $ 16,659 $ 20,225 Brokerage 5,492 6,285 Asset
management fees 3,474 3,153 Principal transactions 6,484 3,630 Gain
on sale and payoff of loans 990 6,771 Net dividend income (14 ) 250
Other income 735 828 Non-interest
revenues 33,820 41,142 Interest
income 7,458 10,620 Interest expense (9,608 ) (8,640
) Net interest (expense)/income (2,150 ) 1,980
Provision for loan losses (312 ) (220 ) Total
net revenues 31,358 42,902
Non-interest expenses: Compensation and benefits 21,771 28,231
Administration 1,250 1,070 Brokerage, clearing and exchange fees
896 1,098 Travel and business development 702 670 Communications
and technology 908 921 Occupancy 817 665 Professional fees 639 708
Depreciation 198 158 Impairment loss on intangible asset - 700
Other 266 104 Total non-interest
expenses 27,447 34,325 Income
before income tax expense 3,911 8,577 Income tax expense 322
2,483 Net income 3,589 6,094 Less: Net income
attributable to noncontrolling interest 3,237
2,556 Net income attributable to JMP Group Inc. $ 352
$ 3,538 Net income attributable to JMP Group Inc. per
share: Basic $ 0.02 $ 0.16 Diluted $ 0.02 $ 0.15 Weighted
average common shares outstanding: Basic 22,180 21,843 Diluted
23,273 22,836
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