JMP Group Inc. (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter and six months ended June 30, 2012.
- Operating net income was $3.0 million,
or $0.13 per diluted share, compared to $4.9 million, or $0.22 per
share, for the second quarter of 2011. For the six months ended
June 30, 2012, operating net income was $7.5 million, or $0.33 per
share, compared to $11.2 million, or $0.49 per share, for the six
months ended June 30, 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
$0.13 per diluted share, an increase of 8.3% from $0.12 per share
for the second quarter of 2011. For the six months ended June 30,
2012, adjusted operating net income was a record $0.32 per share,
an increase of 3.2% from $0.31 for the six months ended June 30,
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.”
- The net loss attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $1.6
million, or $0.07 per diluted share, compared to net income of $1.5
million, or $0.07 per share, for the second quarter of 2011. For
the six months ended June 30, 2012, the net loss was $1.3 million,
or 0.06 per share, compared to net income of $5.1 million, or $0.22
per share, for the six months ended June 30, 2012.
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were $27.7
million, compared to $36.6 million for the second quarter of 2011.
For the six months ended June 30, 2012, adjusted net revenues were
$62.9 million, compared to $81.5 million for the six months ended
June 30, 2011. Further excluding net gains or losses on the sale or
payoff of acquired loans, adjusted net revenues would have been
$27.9 million and $62.4 million for the quarter and six months
ended June 30, 2012, respectively, and $30.4 million and $69.6
million for the quarter and six months ended June 30, 2011,
respectively. 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
$26.6 million and $58.0 million for the quarter and six months
ended June 30, 2012, respectively, compared to $31.5 million and
$74.4 million for the quarter and six months ended June 30, 2011,
respectively.
“Our second quarter results reflected the negative impact of
investors’ renewed global-macro concerns on the U.S. equity capital
markets, which led to a decline in our investment banking and
institutional brokerage revenues and hurt the overall investment
performance of our hedge fund strategies,” said Chairman and Chief
Executive Officer Joe Jolson. “Nevertheless, JMP produced adjusted
operating EPS, which excludes acquired loan sale profits, of $0.13
for the second quarter and a record $0.32 for the first half. The
better-than-expected quarter was partially due to unusual income of
roughly $0.03 per share related to the ending of our advisory
agreement with New York Mortgage Trust. Challenged by limited
underwriting activity and declining institutional equity trading
volumes, JMP Securities still managed to contribute a penny to
adjusted operating EPS for the quarter, while Harvest Capital
Strategies contributed $0.05 (including the aforementioned $0.03 of
unusual income). JMP Credit, which includes net interest income
from Harvest Capital Credit, once again posted strong results,
adding $0.14 per share on an adjusted operating earnings
basis.”
Revenues
Investment Banking
Investment banking revenues were $9.1 million for the quarter, a
decrease of 9.2% from $10.1 million for the second quarter of 2011.
For the six months ended June 30, 2012, investment banking revenues
were $25.8 million, a decrease of 14.8% from $30.3 million for the
six months ended June 30, 2011.
A statement of the company’s investment banking revenues and
transaction counts for the quarter and six months ended
June 30, 2012 and for comparable prior periods is set forth
below.
Quarter Ended Six Months Ended June 30, 2012 Mar. 31, 2012
June 30, 2011 June 30, 2012 June 30, 2011 ($ in thousands) Count
Revenues Count Revenues Count Revenues Count Revenues Count
Revenues Public equity 16 $6,729 23 $9,024 17 $6,069 39 $15,753 40
$18,404
Debt and convertible securities
5 642 5 1,459 4 571 10 2,101 6 5,825
Private capital markets and other
3 1,047 2 2,200 2 1,901 5 3,247 5 3,480 Strategic advisory 1 715 5
3,976 5 1,518 6 4,691 7 2,575 Total 25 $9,133 35 $16,659 28 $10,059
60 $25,792 58 $30,284
Brokerage
Net brokerage revenues were $5.4 million for the quarter, a
decrease of 12.5% from $6.2 million for the second quarter of 2011.
For the six months ended June 30, 2012, net brokerage revenues
totaled $10.9 million, a decrease of 12.6% from $12.5 million
for the six months ended June 30, 2011.
Asset Management
Asset management fees and other related revenues were $6.2
million for the quarter, a decrease of 10.4% from $6.9 million for
the second quarter of 2011. For the six months ended June 30, 2012,
asset management fees and other related revenues were $10.8
million, a decrease of 3.3% from $11.1 million for the six months
ended June 30, 2011. Asset management revenues in the second
quarter of 2012 included unusual revenues of $1.7 million
associated with the conclusion of Harvest Capital Strategies’
advisory relationship with New York Mortgage Trust, Inc. Excluding
these revenues, asset management-related fee revenues would have
been down 35.4% and 18.9% year-over-year for the quarter and six
months ended June 30, 2012, respectively. For more information on
asset management-related fee revenues, please see the section below
titled “Non-GAAP Financial Measures.”
Client assets under management at June 30, 2012 totaled $1.1
billion, including $684.3 million of funds managed by Harvest
Capital Strategies and $459.2 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 March
31, 2012 and $1.3 billion at June 30, 2011. Including sponsored
funds, client assets under management totaled $1.6 billion at June
30, 2012, compared to $2.1 billion at March 31, 2012 and $2.4
billion at June 30, 2011.
During the second quarter, Expo Health Sciences Master Fund, a
hedge fund sponsored by Harvest Capital Strategies that represented
$497.9 million of assets under management at March 31, 2012,
elected to liquidate, returning all capital to its limited partners
in mid-July. Accordingly, because all fund balances are recorded
net of pending redemptions for the purposes of JMP Group’s
financial reporting, Expo was deemed to have no assets under
management at June 30, 2012, resulting in a significant drop-off in
JMP Group’s reported client assets under management including
sponsored funds. Expo contributed $0.3 million in asset
management-related fee revenues in the second quarter of 2012,
adding less than $0.01 per share in adjusted operating earnings to
Harvest Capital Strategies’ and JMP Group’s results for the
period.
At June 30, 2012, private capital, including corporate credit,
small business lending, REIT advisory services, venture capital and
distressed mortgage investments, represented 63.5% of client assets
under management including sponsored funds.
Principal Transactions
Principal transactions generated net revenues of $7.8 million
for the quarter, an increase of 204.6% from $2.6 million for the
second quarter of 2011. For the six months ended June 30, 2012,
principal transactions generated net revenues of $14.3 million, an
increase of 130.7% from $6.2 million for the six months ended June
30, 2011. JMP Group’s investment in Harvest Capital Strategies’
hedge funds lost approximately 40 basis points in the second
quarter of 2012 but could nevertheless meet its annual gross return
objective of 10%, having generated a gross return of 6.6% for the
first half of 2012.
A statement of the company’s principal transaction revenues for
the quarter and six months ended June 30, 2012 and for
comparable prior periods is set forth below.
Quarter Ended Six Months Ended
(in thousands) June 30, 2012 Mar. 31, 2012 June 30, 2011 June 30,
2012 June 30, 2011 Hedge fund investments ($248) $2,744
$1,612 $2,496 $2,279 Principal investments: Investment in
New York Mortgage Trust - (209) 545 (209) 703 Other principal
investments 901 (110) - 791 (281) Total principal investments 901
(319) 545 582 422 Venture investments: Investment in Harvest
Growth Capital 328 197 8 525 100 Other venture investments and
warrants 279 502 268 781 618 Total venture investments 607 699 276
1,306 718
Principal transaction revenues net of
non-controlling interest in Harvest Growth Capital
1,260 3,124 2,433 4,384 3,419
Non-controlling interest in Harvest Growth
Capital
6,520 3,360 121 9,880 2,765 Total principal transaction
revenues $7,780 $6,484 $2,554 $14,264 $6,184
Of the $7.8 million of principal transaction revenues for the
quarter ended June 30, 2012, $6.5 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 4.5% 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 $6.5 million of net
realized and unrealized gains for the second 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 $0.3
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 $1.4 million due to
the sale or payoff of 19 of the loans in its portfolio during the
quarter, compared to $6.8 million in connection with 31 loans
during the second quarter of 2011. For the six months ended June
30, 2012, realized gains amounted to $2.4 million as a result of
the sale or payoff of 39 loans, compared to $13.6 million in
connection with 70 loans for the six months ended June 30,
2011. For the quarter and six months ended June 30, 2012, realized
gains of $0.8 million and $1.5 million, respectively, were due
to the sale or payoff of loans acquired with JMP Credit in April
2009, compared to realized gains of $6.2 million and $12.0 million,
respectively, for the quarter and six months ended June 30, 2011.
At June 30, 2012, eight loans with an aggregate par value of
$30.5 million and an associated liquidity discount of $7.6
million remained from the portfolio acquired in April 2009.
A loan loss provision of $1.4 million was recorded for the
quarter, of which $1.0 million was with regard to an impaired
acquired loan at JMP Credit and $0.4 million was as a general
reserve in connection with performing loans at JMP Credit and
Harvest Capital Credit, a small business lending strategy, both of
which are currently consolidated under GAAP. At June 30, 2012,
general loan loss reserves equaled 0.6% of gross performing loans,
compared to 0.4% at June 30, 2011.
At June 30, 2012, gross impaired loans totaled $3.3 million, or
0.7% of gross loans outstanding, compared to $14.1 million, or 3.1%
of gross loans outstanding, at June 30, 2011. With regard to
impaired loans at June 30, 2012, discounts and reserves (including
credit discounts, liquidity discounts, and allowances for loan
losses) equaled $3.3 million, or 100.0% of gross impaired loans
outstanding. With regard to performing loans at June 30, 2012,
discounts and reserves (including liquidity discounts, allowances
for loan losses and deferred loan fees) equaled $15.1 million, or
3.3% of gross performing loans outstanding.
Other Income
Other income was $2.4 million for the quarter, an increase of
253.0% from $0.7 million for the second quarter of 2011. Of the
$2.4 million recorded for the second quarter of 2012, $1.7 million
was due to a fee paid by New York Mortgage Trust, Inc. upon
termination of its advisory agreement with Harvest Capital
Strategies. As a result, Harvest Capital Strategies no longer
performs ongoing asset management duties for New York Mortgage
Trust, and JMP Group no longer holds a strategic equity investment
in New York Mortgage Trust. However, Harvest Capital Strategies
will continue to earn performance-related incentive fee income on
investments made during its tenure as advisor—primarily the
mezzanine notes in Cratos CLO I, a collateralized loan obligation
managed by JMP Credit Advisors—and will retain its minority
ownership interest in RiverBanc LLC, an asset manager that invests
in multifamily and commercial mortgages and commercial
mortgage-backed securities. For the six months ended June 30, 2012,
other income was $3.1 million, an increase of 108.1% from $1.5
million for the six months ended June 30, 2011. Excluding the
termination fee of $1.7 million, other income fell 1.5% and 6.8%
year-over-year for the quarter and six months ended June 30, 2012,
respectively.
Net Interest Income
Interest income was $8.3 million for the quarter, and interest
expense was $9.9 million, resulting in net interest expense of $1.6
million, compared to $1.1 million for the second quarter of 2011.
Excluding net amortization expense related to liquidity discounts,
net interest income was $5.4 million, compared to $4.7 million for
the quarter ended June 30, 2011. The year-over-year increase was
due to the launch of Harvest Capital Credit in September 2011 and
the subsequent partial deployment of its committed capital. The net
amortization expense, which reduced second quarter GAAP EPS by
approximately $0.18, is expected to be extinguished in May 2013.
For the six months ended June 30, 2012, net interest expense was
$3.8 million, compared to net interest income of $0.9 million for
the six months ended June 30, 2011; excluding net interest
expense due to net amortization of liquidity discounts, net
interest income was $10.4 million and $11.5 million, respectively,
for the same periods.
Expenses
Compensation and Benefits
Compensation and benefits expense was $16.7 million for the
quarter, compared to $22.0 million for the second quarter of 2011.
For the second 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 expense completely amortized in the first half of 2011 with the
vesting of the final tranche of IPO-related RSUs. For the second
quarter of 2011, non-cash compensation expense attributable to
IPO-related RSUs was $0.4 million. For the second 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 second quarter
of 2011.
For the six months ended June 30, 2012, compensation and
benefits expense was $38.5 million, compared to $50.2 million for
the six months ended June 30, 2011, and there was no IPO-related
RSU expense—as explained above—compared to $0.8 million for the
same periods, respectively. For the six months ended June 30, 2012,
non-cash compensation expense attributable to performance-related
and other RSUs granted subsequent to the company’s IPO was $0.4
million, compared to $0.2 million for the six months ended June 30,
2011.
As a percentage of adjusted net revenues, compensation and
benefits expense was 60.2% for the quarter, compared to 60.2% for
the second quarter of 2011, and was 61.2% for the six months ended
June 30, 2012, compared to 61.6% for the six months ended June 30,
2011. Excluding the cost of RSU grants, compensation and benefits
expense was 59.5% of adjusted net revenues for the quarter,
compared to 58.7% for the second quarter of 2011, and was 60.6% for
the six months ended June 30, 2012, compared to 60.4% for the six
months ended June 30, 2011.
Non-Compensation Expense
Non-compensation expense was $6.0 million for the quarter,
compared to $6.6 million for the second quarter of 2011. For the
six months ended June 30, 2012, non-compensation expense was
$11.7 million, compared to $12.7 million for the six months
ended June 30, 2011. As a percentage of adjusted net revenues,
non-compensation expense was 21.6% for the quarter, compared to
18.0% for the second quarter of 2011, and was 18.5% for the six
months ended June 30, 2012, compared to 15.6% for the six months
ended June 30, 2011.
Personnel
At June 30, 2012, the company had 214 full-time employees,
compared to 208 at the end of the prior quarter and 210 at June 30,
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 $7.0 million and $14.2 million for the
quarter and six months ended June 30, 2012, 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;
- non-cash general loan loss provisions
of $0.3 million and $0.5 million taken with regard to Harvest
Capital Credit for the quarter and six months ended June 30, 2012,
respectively;
- 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
impact of gains or losses 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 reconciliation of JMP Group’s net revenues to its adjusted net
revenues for the quarter and six months ended June 30, 2012 and for
comparable prior periods is set forth below.
Quarter Ended Six Months Ended
(in thousands) June 30, 2012 Mar. 31, 2012 June 30, 2011 June 30,
2012 June 30, 2011 Revenues: Non-interest revenues $28,235
$33,508 $32,529 $61,743 $73,451 Net interest income (1,618) (2,150)
(1,068) (3,768) 912 Total net revenues 26,617 31,358 31,461 57,975
74,363
Asset management fees earned on Harvest
Growth Capital and Harvest Capital Credit (1)
353 332 203 685 406
Dividend distribution from Harvest Capital
Credit (1)
- 77 - 77 -
Less: Net interest income and other
revenues from Harvest Capital Credit (1)
(475) (339) - (814) -
Total net revenues including fee revenues
from consolidated entities
26,495 31,428 31,664 57,923 74,769 Add back/(subtract):
Net amortization of liquidity discounts on
loans and asset-backed securities issued
7,000 7,175 5,746 14,175 10,540 Amortization of intangible asset -
- 100 - 200 Loan loss provision – Harvest Capital Credit 322 219 -
541
Net unrealized loss/(gain) on strategic
equity investments and warrants
447 (321) (824) 126 (1,221)
Non-controlling interest in net unrealized
(gain) on Harvest Growth Capital
(6,520) (3,360) (121) (9,880) (2,765) Adjusted net revenues 27,744
35,141 36,565 62,885 81,523 Subtract: Net (loss)/gain on
loan portfolio acquired (183) 707 6,165 524 11,963
Adjusted net revenues excluding net gain
on loan portfolio acquired
$27,927 $34,434 $30,400 $62,361 $69,560
(1)
Adjustments to reflect economic
contributions from Harvest Growth Capital and Harvest Capital
Credit as though deconsolidated for purposes of financial
reporting; upon deconsolidation, fee revenues and dividend payments
would be recognized, while net interest income and other revenues
generated by the two entities would not be recorded by JMP
Group.
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 or losses 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 JMP Group’s asset management-related fee revenues
for the quarter and six months ended June 30, 2012 and for
comparable prior periods is set forth below.
Quarter Ended Six Months Ended
(in thousands) June 30, 2012 Mar. 31, 2012 June 30, 2011 June 30,
2012 June 30, 2011 Base management fees: Fees reported as
asset management fees $2,462 $2,438 $2,316 $4,900 $4,590 Fees
reported as other income 606 709 569 1,315 987
Fees earned at Harvest Growth Capital and
Harvest Capital Credit
241 201 203 442 406 Total base management fees 3,309 3,348 3,088
6,657 5,983 Incentive fees: Fees reported as asset
management fees 1,030 1,036 3,730 2,066 4,609 Fees reported as
other income - - 2 - 352
Fees earned at Harvest Growth Capital and
Harvest Capital Credit
112 131 - 243 - Total incentive fees 1,142 1,167 3,732 2,309 4,961
Other fee income:
Fundraising fees 26 27 111 53 171 New York Mortgage Trust
termination fee 1,735 - - 1,735 -
Total other fee income
1,761 27 111 1,788 171 Asset management-related fee
revenues: All fees reported as asset management fees 3,492 3,474
6,046 6,966 9,199 All fees reported as other income 2,367 736 682
3,103 1,510
All fees earned at Harvest Growth Capital
and Harvest Capital Credit
353 332 203 685 406
Total asset management-related fee
revenues
$6,212 $4,542 $6,931 $10,754 $11,115
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, resulting in
non-cash compensation expense in periods prior to the quarter ended
September 30, 2011;
- the grant of RSUs subsequent to the
company’s IPO, which resulted in non-cash compensation expense of
$0.2 million and $0.4 million for the quarter and six months ended
June 30, 2012, respectively;
- the non-cash net amortization of
liquidity discounts at JMP Credit, due to scheduled contractual
principal repayments, of $7.0 million and $14.2 million for the
quarter and six months ended June 30, 2012, 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;
- non-cash general loan loss provisions
of $0.1 million and $0.2 million, after income tax expense and
non-controlling interest, for the quarter and six months ended June
30, 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 its operating net
income for the quarter and six months ended June 30, 2012 and for
comparable prior periods are set forth below.
Quarter Ended (in thousands, except per share
amounts) June 30, 2012 Mar. 31, 2012 June 30, 2011 Net
(loss)/income attributable to JMP Group Inc. ($1,625) $352 $1,518
Add back: Income tax (benefit)/expense (975) 322 1,281
(Loss)/income before taxes (2,600) 674 2,799 Add
back/(subtract): Compensation expense – IPO-related RSUs - - 447
Compensation expense – post-IPO RSUs 208 180 122
Net amortization of liquidity discounts on
loans and asset-backed securities issued
7,000 7,175 5,746 Amortization of intangible asset - - 100 Loan
loss provision – Harvest Capital Credit 117 94 -
Unrealized loss/(gain) on strategic equity
investments and warrants
447 (321) (824) Operating income before taxes 5,172 7,802 8,390
Income tax expense (assumed rate of 42%) 2,172 3,277 3,524
Operating net income $3,000 $4,525 $4,866 Operating net
income per share: Basic $0.13 $0.20 $0.22 Diluted $0.13 $0.19 $0.22
Weighted average shares outstanding: Basic 22,772 22,180
22,254 Diluted 22,859 23,273 22,613 Six Months
Ended (in thousands, except per share amounts) June 30, 2012 June
30, 2011 Net (loss)/income attributable to JMP Group Inc.
($1,273) $5,056 Add back: Income tax (benefit)/expense (653)
3,764 (Loss)/income before taxes (1,926) 8,820 Add
back/(subtract): Compensation expense – IPO-related RSUs - 778
Compensation expense – post-IPO RSUs 388 248
Net amortization of liquidity discounts on
loans and asset-backed securities issued
14,175 10,540 Amortization of intangible asset - 200 Loan loss
provision – Harvest Capital Credit 211 -
Unrealized loss/(gain) on strategic equity
investments and warrants
126 (1,221) Operating income before taxes 12,974 19,365
Income tax expense (assumed rate of 42%) 5,449 8,133 Operating net
income $7,525 $11,232 Operating net income per share: Basic
$0.33 $0.51 Diluted $0.33 $0.49 Weighted average shares
outstanding: Basic 22,476 22,050 Diluted 23,057 22,720
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 or losses 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 businesses and ongoing operations. Moreover, the company
utilizes adjusted operating net income as a threshold for the
vesting of its performance-related RSUs.
Reconciliations of JMP Group’s operating net income to its
adjusted operating net income for the quarter and six months ended
June 30, 2012 and for comparable prior periods are set forth
below.
Quarter Ended (in thousands, except per share
amounts) June 30, 2012 Mar. 31, 2012 June 30, 2011 Operating
net income $3,000 $4,525 $4,866 Add back: Income tax expense
(assumed rate of 42%) 2,172 3,277 3,524 Operating income before
taxes 5,172 7,802 8,390 Subtract:
(Loss)/earnings from gains on loan
portfolio acquired
(110) 424 3,699 Adjusted operating income before taxes 5,282 7,378
4,691 Income tax expense (assumed rate of 42%) 2,218 3,099
1,970 Adjusted operating net income $3,064 $4,279 $2,721
Adjusted operating net income per share: Basic $0.13 $0.19 $0.12
Diluted $0.13 $0.18 $0.12 Weighted average shares
outstanding: Basic 22,772 22,180 22,254 Diluted 22,859 23,273
22,613 Six Months Ended (in
thousands, except per share amounts) June 30, 2012 June 30, 2011
Operating net income $7,525 $11,232 Add back: Income
tax expense (assumed rate of 42%) 5,449 8,133 Operating income
before taxes 12,974 19,365 Subtract: Earnings from gains on
loan portfolio acquired 314 7,178 Adjusted operating income before
taxes 12,660 12,187 Income tax expense (assumed rate of 42%)
5,317 5,119 Adjusted operating net income $7,343 $7,068
Adjusted operating net income per share: Basic $0.33 $0.32 Diluted
$0.32 $0.31 Weighted average shares outstanding: Basic
22,476 22,050 Diluted 23,057 22,720
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 tables that follow. Management believes that these
presentations enable 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.
Statements of JMP Group’s operating net income on a segment
basis for the quarter and six months ended June 30, 2012 are set
forth below.
Quarter Ended June 30, 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 $9,205 - - - - $9,205 - ($72) $9,133 Brokerage
5,412 - - - - 5,412 - - 5,412 Asset management-related fees (1)
(26) $6,353 $24 ($54) ($85) 6,212 ($164) (149) 5,899 Principal
transactions (2) 81 1,276 81 377 - 1,815 6,520 (105) 8,230 Gain on
sale and payoff of loans - - 1,449 - - 1,449 - - 1,449 Net dividend
income (9) - - - - (9) - - (9) Net interest income (3) 2 77 4,606
81 - 4,766 - 613 5,379 Provision for loan losses (4) - - (1,107) -
- (1,107) - - (1,107) Adjusted net revenues 14,665 7,706 5,053 404
(85) 27,743 6,356 287 34,386 Expenses: Non-interest expenses
(5) 14,113 5,836 (429) 3,001 (85) 22,436 24 18 22,478 Less:
Non-controlling interest (6) - - 135 - - 135 6,332 269 6,736
Operating income before taxes 552 1,870 5,347 (2,597) - 5,172 - -
5,172
Income tax expense/(benefit) (assumed rate
of 42%)
231 785 2,247 (1,091) - 2,172 - - 2,172
Operating net income/(loss)
$321 $1,085 $3,100 ($1,506) - $3,000 - - $3,000
Operating net income/(loss) per share:
Basic $0.01 $0.05 $0.14 ($0.07) - $0.13 - - $0.13 Diluted $0.01
$0.05 $0.14 ($0.07) - $0.13 - - $0.13 Reconciliation to
Adjusted Operating Net Income Operating income before taxes
$5,347 $5,172 $5,172
Less: Earnings contribution from gain on
loan portfolio acquired
(110) (110) (110)
Adjusted operating income before taxes
5,457 5,282 5,282
Income tax expense (assumed rate of
42%)
2,292 2,218 2,218
Adjusted operating net income
$3,165 $3,064 $3,064
Adjusted operating net income/(loss) per
share:
Basic $0.01 $0.05 $0.14 ($0.07) - $0.13 - - $0.13 Diluted $0.01
$0.05 $0.14 ($0.07) - $0.13 - - $0.13
(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 $6.4 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 $0.3 million.
(5)
Reverses stock-based compensation expense
and excludes fund-related expenses totaling $42,000 that are
recognized upon consolidation of Harvest Growth Capital and Harvest
Capital Credit.
(6)
Excludes non-controlling interests
totaling $6.6 million in the net realized and unrealized gains of
Harvest Growth Capital and Harvest Capital Credit that are
recognized upon consolidation of the entities.
Six
Months Ended June 30, 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 $25,918 - - - - $25,918 - ($124) $25,794
Brokerage 10,904 - - - - 10,904 - - 10,904 Asset management-related
fees (1) (26) $11,026 $63 ($54) ($255) 10,754 ($402) (244) 10,108
Principal transactions (2) 296 2,747 245 1,291 - 4,579 9,880 (67)
14,392 Gain on sale and payoff of loans - - 2,439 - - 2,439 - -
2,439 Net dividend income (23) 77 - - - 54 - (77) (23) Net interest
income (3) 50 81 9,214 92 - 9,437 - 967 10,404 Provision for loan
losses (4) - - (1,200) - - (1,200) - - (1,200) Adjusted net
revenues 37,119 13,931 10,761 1,329 (255) 62,885 9,478 455 72,818
Expenses: Non-interest expenses (5) 33,108 10,603 (682)
6,865 (255) 49,639 45 60 49,744 Less: Non-controlling
interest (6) - - 272 - - 272 9,433 395 10,100 Operating income
before taxes 4,011 3,328 11,171 (5,536) - 12,974 - - 12,974
Income tax expense/(benefit) (assumed rate
of 42%)
1,684 1,397 4,693 (2,325) - 5,449 - - 5,449
Operating net income/(loss)
$2,327 $1,931 $6,478 ($3,211) - $7,525 - - $7,525
Operating net income/(loss) per share:
Basic $0.10 $0.08 $0.29 ($0.14) - $0.33 - - $0.33 Diluted $0.10
$0.08 $0.29 ($0.14) - $0.33 - - $0.33 Reconciliation to
Adjusted Operating Net Income Operating income before taxes
$11,171 $12,974 $12,974
Less: Earnings contribution from gain on
loan portfolio acquired
314 314 314
Adjusted operating income before taxes
10,857 12,660 12,660
Income tax expense (assumed rate of
42%)
4,560 5,317 5,317 Adjusted operating net income $6,297 $7,343
$7,343
Adjusted operating net income/(loss) per
share:
Basic $0.10 $0.08 $0.28 ($0.14) - $0.33 - - $0.33 Diluted $0.10
$0.08 $0.28 ($0.14) - $0.32 - - $0.32
(1)
Reflects revenues detailed in section
above titled “Asset Management-Related Fee Revenues;” management
fees totaling $0.6 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 $9.8 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 $0.5 million.
(5)
Reverses stock-based compensation expense
and excludes fund-related expenses totaling $105,000 that are
recognized upon consolidation of Harvest Growth Capital and Harvest
Capital Credit.
(6)
Excludes non-controlling interests
totaling $9.8 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 June 30, 2012, JMP Group’s tangible book value per share was
$5.43, compared to $5.52 at March 31, 2012 and $5.91 at June
30, 2011. 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 June 30, 2012 would have been $4.77, as
indicated by the table below.
(in thousands, except per share amounts) June
30, 2012 Mar. 31, 2012 June 30, 2011 Total JMP Group
stockholders' equity $123,385 $125,871 $132,360 Less: Goodwill and
intangible assets - - - Tangible stockholders' equity 123,385
125,871 132,360 Liquidity discount on loans 7,582 13,894
20,880 Liquidity discount on asset-backed securities issued
(33,097) (41,392) (64,923) Net liquidity discount (25,515) (27,498)
(44,043) Income tax benefit (assumed rate of 42%) 10,716 11,549
18,498 Net after-tax liquidity discount (14,799) (15,949) (25,545)
Adjusted tangible stockholders' equity $108,586 $109,922
$106,815 Adjusted tangible book value per share $4.77 $4.82
$4.77 Basic shares outstanding 22,742 22,812 22,388
Quarterly operating ROATE (1) 11.0% 16.7% 18.2% LTM operating ROATE
(1) 12.5% 14.2% 22.6%
Quarterly operating ROATE (1) excluding
the financial impact of gains on acquired loans
11.2% 15.8% 10.2%
LTM operating ROATE (1) excluding the
financial impact of gains on acquired loans
11.9% 11.6% 12.1%
(1)
Return on adjusted tangible equity equals
annualized operating net income divided by average adjusted
tangible stockholders’ equity.
Share Repurchase Activity
During the quarter ended June 30, 2012, JMP Group repurchased
46,500 shares of its common stock at an average price of $6.10 per
share, or $0.3 million in total. At quarter-end, approximately
465,000 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 as filed with the Securities and Exchange Commission on
March 12, 2012 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, 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, July 25, 2012. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
12253735.
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) June 30, 2012 Dec. 31, 2011
Assets Cash and cash equivalents $63,005 $70,363 Restricted
cash and deposits 47,345 48,440 Receivable from clearing broker
1,003 1,138 Marketable securities owned, at fair value 15,625
24,309 Other investments 77,008 51,706 Loans held for sale 2,814
2,957
Loans collateralizing asset-backed
securities issued, net of purchase discounts and allowance for loan
losses
417,349 410,770 Small business loans, net of allowance for loan
losses 21,454 7,477 Deferred tax assets 21,051 26,221 Other assets
19,274 17,240 Total assets $685,928 $660,621 Liabilities and
Stockholders' Equity Liabilities: Marketable securities
sold, but not yet purchased, at fair value $12,083 $10,921 Accrued
compensation 24,441 38,143 Asset-backed securities issued, net of
purchase discounts 397,906 381,556 Note payable 27,341 19,222
Deferred tax liability 17,225 23,214 Other liabilities 28,879
31,081 Total liabilities 507,875 504,137 Redeemable
non-controlling interest 106 50 Stockholders' Equity: Total
JMP Group Inc. stockholders' equity 123,385 129,705 Non-redeemable
non-controlling interest 54,562 26,729 Total equity 177,947 156,434
Total liabilities and stockholders' equity $685,928 $660,621
JMP GROUP INC.
Consolidated Statements of Operations
(Unaudited)
Quarter Ended Six Months Ended (in thousands, except per
share amounts) June 30, 2012 June 30, 2011 June 30, 2012 June 30,
2011 Revenues: Investment banking $9,133 $10,059 $25,792
$30,284 Brokerage 5,412 6,187 10,904 12,472 Asset management fees
3,492 6,046 6,966 9,199 Principal transactions 7,780 2,554 14,264
6,184 Gain on sale and payoff of loans 1,449 6,837 2,439 13,608
Net dividend (expense)/income
(9) 298 (23) 548 Other income 2,407 682 3,142 1,510 Non-interest
revenues 29,664 32,663 63,484 73,805 Interest income 8,260
7,728 15,718 18,348 Interest expense (9,878) (8,796) (19,486)
(17,436) Net interest (expense)/income (1,618) (1,068) (3,768) 912
Provision for loan losses (1,429) (134) (1,741) (354) Total
net revenues 26,617 31,461 57,975 74,363 Non-interest
expenses: Compensation and benefits 16,704 22,017 38,475 50,248
Administration 1,709 1,744 2,959 2,814 Brokerage, clearing and
exchange fees 858 1,179 1,755 2,277 Travel and business development
987 791 1,689 1,461 Communications and technology 825 995 1,733
1,916 Occupancy 721 777 1,538 1,442 Professional fees 718 797 1,357
1,505 Depreciation 217 179 416 337 Impairment loss on intangible
asset - - - 700 Other (51) 134 213 238 Total non-interest expenses
22,688 28,613 50,135 62,938 Income before income tax expense
3,929 2,848 7,840 11,425 Income tax (benefit)/expense (975) 1,281
(653) 3,764 Net income 4,904 1,567 8,493 7,661 Less: Net income
attributable to noncontrolling interest 6,529 49 9,766 2,605 Net
(loss)/income attributable to JMP Group Inc. ($1,625) $1,518
($1,273) $5,056 Net (loss)/income attributable to JMP Group
Inc. per share: Basic ($0.07) $0.07 ($0.06) $0.23 Diluted ($0.07)
$0.07 ($0.06) $0.22 Weighted average common shares
outstanding: Basic 22,772 22,254 22,476 22,050 Diluted 22,859
22,613 23,057 22,720
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