JMP Group Inc. (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter and nine months ended September 30, 2012.
- Operating net income was $3.0 million,
or $0.13 per diluted share, compared to $2.7 million, or $0.12 per
share, for the third quarter of 2011. For the nine months ended
September 30, 2012, operating net income was $10.6 million, or
$0.46 per share, compared to $13.9 million, or $0.61 per share, for
the nine months ended September 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 30.0% from $0.10 per share
for the third quarter of 2011. For the nine months ended September
30, 2012, adjusted operating net income was a record $0.44 per
share, an increase of 7.3% from $0.41 per share for the nine months
ended September 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 $1.7
million, or $0.07 per diluted share, compared to a net loss of $1.6
million, or $0.07 per share, for the third quarter of 2011. For the
nine months ended September 30, 2012, the net loss was $2.9
million, or $0.13 per share, compared to net income of $3.4
million, or $0.15 per share, for the nine months ended September
30, 2011.
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were $28.8
million, compared to $28.1 million for the third quarter of 2011.
For the nine months ended September 30, 2012, adjusted net revenues
were $91.7 million, compared to $109.6 million for the nine months
ended September 30, 2011. Further excluding net gains or losses on
the sale or payoff of acquired loans, adjusted net revenues would
have been $28.4 million and $90.7 million for the quarter and nine
months ended September 30, 2012, respectively, and $27.1 million
and $96.7 million for the quarter and nine months ended September
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
$18.1 million and $76.1 million for the quarter and nine months
ended September 30, 2012, respectively, compared to $17.4 million
and $91.7 million for the quarter and nine months ended September
30, 2011, respectively.
“We had a better-than-expected third quarter as a result of
increased equity capital markets activity and good overall
performance in our hedge funds,” said Chairman and Chief Executive
Officer Joe Jolson. “JMP Group posted adjusted operating EPS—which
excludes profits on the sale of acquired loans—of $0.13, up 30%
from the third quarter of last year. Despite depressed
institutional equity underwriting and trading volumes that have
persisted across Wall Street for much of 2012, JMP remains on track
to produce a second consecutive year of record earnings, generating
$0.44 of adjusted operating EPS for the first nine months of 2012,
compared to $0.41 for the same period in 2011. We continue to be
cautiously optimistic heading into the fourth quarter, with
increased ECM market share, a healthy backlog of advisory revenues,
and growth initiatives underway at our three operating
platforms.”
Revenues
Investment Banking
Investment banking revenues were $12.2 million, an increase of
21.6% from $10.0 million for the third quarter of 2011. For the
nine months ended September 30, 2012, investment banking revenues
were $38.0 million, a decrease of 5.8% from $40.3 million for the
nine months ended September 30, 2011.
A statement of the company’s investment banking revenues and
transaction counts for the quarter and nine months ended
September 30, 2012 and for comparable prior periods is set
forth below.
Quarter Ended Nine Months Ended Sept. 30, 2012
June 30, 2012 Sept. 30, 2011 Sept. 30, 2012 Sept. 30,
2011 ($ in thousands) Count Revenues Count Revenues
Count Revenues Count Revenues Count Revenues
Public equity 28 $ 9,297 16 $ 6,729 13 $ 7,280 67 $ 25,050
53 $ 25,684
Debt and convertible securities
3 293 5 642 1 441 13 2,393 7 6,266
Private capital markets and other
2 989 3 1,047 - 249 7 4,236 5 3,729 Strategic advisory 3
1,639 1 715 3 2,078 9 6,331 10 4,653
Total 36 $ 12,218 25 $ 9,133 17 $ 10,048 96 $ 38,010 75 $
40,332
Brokerage
Net brokerage revenues were $5.4 million, a decrease of 22.1%
from $6.9 million for the third quarter of 2011, although
approximately in line with the second quarter’s total. For the nine
months ended September 30, 2012, net brokerage revenues totaled
$16.3 million, a decrease of 16.0% from $19.4 million for
the nine months ended September 30, 2011.
Asset Management
Asset management fees and other related revenues were $4.7
million, a decrease of 31.9% from $6.9 million for the third
quarter of 2011. For the nine months ended September 30, 2012,
asset management fees and other related revenues were $15.5
million, a decrease of 14.2% from $18.0 million for the nine months
ended September 30, 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 September 30, 2012 totaled
$1.2 billion, including $726.7 million of funds managed by Harvest
Capital Strategies and $471.0 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 June
30, 2012 and $1.3 billion at September 30, 2011. Including
sponsored funds, client assets under management totaled $1.7
billion at September 30, 2012, compared to $1.6 billion at
June 30, 2012 and $2.4 billion at September 30, 2011.
At September 30, 2012, private capital, including corporate
credit, small business lending, REIT advisory services, venture
capital and distressed mortgage investments, represented 62.4% of
client assets under management including sponsored funds.
Principal Transactions
Principal transactions generated net realized and unrealized
losses of $2.0 million, compared to net losses of $6.3 million for
the third quarter of 2011. For the nine months ended September 30,
2012, principal transactions generated net realized and unrealized
gains of $12.3 million, compared to net losses of $0.1 million
for the nine months ended September 30, 2011.
A statement of the company’s principal transaction revenues for
the quarter and nine months ended September 30, 2012 and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2012 June 30, 2012 Sept. 30, 2011 Sept. 30, 2012
Sept. 30, 2011 Hedge fund investments $ 1,580
$
(248
)
$
(1,758
) $ 4,076 $ 521 Principal investments:
Investment in New York Mortgage Trust - - (689 ) (209 ) 14 Other
principal investments 38 901 (68
) 829 (349 ) Total principal investments
38 901 (757 ) 620
(335 ) Venture investments: Investment in Harvest
Growth Capital (131 ) 328 (149 ) 394 (49 ) Other venture
investments and warrants (421 ) 279
(642 ) 360 (24 ) Total venture investments
(552 ) 607 (791 ) 754
(73 )
Principal transaction revenues net of
non-controlling interest in Harvest Growth Capital
1,066 1,260 (3,306 )
5,450 113
Non-controlling interest in Harvest Growth
Capital
(3,021 ) 6,520 (2,984 ) 6,859
(219 ) Total principal transaction revenues
$
(1,955
) $ 7,780
$
(6,290
) $ 12,309
$
(106
)
Of the $2.0 million in net losses for the quarter ended
September 30, 2012, a loss of $3.0 million was attributable to
a non-controlling interest in net realized and unrealized losses at
Harvest Growth Capital, a venture capital fund managed by Harvest
Capital Strategies that is consolidated under GAAP. GAAP accounting
requires that JMP Group consolidate Harvest Growth Capital due to
Harvest Capital Strategies’ role as the fund’s manager and managing
member, despite the company’s ownership of just 4.6% of the fund.
The presentation of adjusted net revenues elsewhere in this press
release excludes JMP Group's non-controlling interest in Harvest
Growth Capital; and, accordingly, the aforementioned loss of $3.0
million is not included in adjusted net revenues. Net of its
non-controlling interest, JMP Group had a net realized and
unrealized loss of $0.1 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 a net gain of $0.2 million due
to a mark-to-market adjustment on a loan held for sale in addition
to the sale or payoff of 28 of the loans in its portfolio, compared
to a net gain of $1.4 million in connection with 20 loans for the
third quarter of 2011. For the nine months ended September 30,
2012, the net realized gain amounted to $2.6 million as a
result of the sale or payoff of 67 loans, compared to a net gain of
$15.0 million in connection with 90 loans for the nine months ended
September 30, 2011. For the quarter and nine months ended
September 30, 2012, net realized gains of $0.5 million and
$2.0 million, respectively, were due to the sale or payoff of loans
acquired with JMP Credit in April 2009, compared to net realized
gains of $1.0 million and $13.0 million, respectively, for the
quarter and nine months ended September 30, 2011. At September 30,
2012, eight loans with an aggregate par value of $30.2 million
and an associated liquidity discount of $6.5 million remained from
the portfolio acquired in April 2009.
A net loan loss provision of $0.1 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 September 30, 2012, general loan loss
reserves equaled 0.7% of gross performing loans, compared to 0.4%
at September 30, 2011.
At September 30, 2012, gross impaired loans totaled $3.2
million, or 0.7% of gross loans outstanding, compared to $14.0
million, or 3.1% of gross loans outstanding, at September 30, 2011.
With regard to impaired loans at September 30, 2012, discounts and
reserves (including credit discounts, liquidity discounts, and
allowances for loan losses) equaled $3.2 million, or 100.0% of
gross impaired loans outstanding. With regard to performing loans
at September 30, 2012, discounts and reserves (including liquidity
discounts, allowances for loan losses and deferred loan fees)
equaled $15.7 million, or 3.6% of gross performing loans
outstanding.
Other Income
Other income was $0.4 million, compared to $1.0 million for the
third quarter of 2011. For the nine months ended September 30,
2012, other income was $3.5 million, compared to $2.5 million
for the nine months ended September 30, 2011.
Net Interest Income
Interest income was $8.3 million, and interest expense was $10.1
million, resulting in net interest expense of $1.8 million,
compared to net interest expense of $1.6 million for the third
quarter of 2011. Excluding net amortization expense related to
liquidity discounts, net interest income was $5.7 million, compared
to $4.8 million for the third quarter of 2011. The year-over-year
increase was due to the launch of Harvest Capital Credit in
September 2011 and the subsequent deployment of a portion of its
committed capital. The net amortization expense, which reduced
third quarter EPS by approximately $0.19, is expected to be
extinguished in May 2013. For the nine months ended September 30,
2012, net interest expense was $5.5 million, compared to net
interest expense of $0.7 million for the nine months ended
September 30, 2011; excluding net interest expense due to net
amortization of liquidity discounts, net interest income was $16.1
million and $16.2 million, respectively, for the same periods.
Expenses
Compensation and Benefits
Compensation and benefits expense was $17.4 million, compared to
$16.0 million for the third quarter of 2011. For the third quarter
of 2012, non-cash compensation expense attributable to
performance-related and other restricted stock units, or RSUs,
granted subsequent to JMP Group’s May 2007 initial public offering
was $0.2 million, compared to $0.1 million for the third
quarter of 2011.
For the nine months ended September 30, 2012, compensation and
benefits expense was $55.8 million, compared to $66.2 million for
the nine months ended September 30, 2011. For the nine months ended
September 30, 2012, there was no non-cash compensation expense
attributable to RSUs granted in connection with the company’s IPO,
as the expense completely amortized in the first half of 2011 with
the vesting of the final tranche of IPO-related RSUs. For the nine
months ended September 30, 2011, non-cash compensation expense
attributable to IPO-related RSUs was $0.8 million. For the nine
months ended September 30, 2012, non-cash compensation expense
attributable to performance-related and other RSUs granted
subsequent to the company’s IPO was $0.6 million, compared to $0.4
million for the nine months ended September 30, 2011.
As a percentage of adjusted net revenues, compensation and
benefits expense was 60.2% for the quarter, compared to 56.8% for
the third quarter of 2011, and was 60.9% for the nine months ended
September 30, 2012, compared to 60.4% for the nine months ended
September 30, 2011. Excluding the cost of RSU grants, compensation
and benefits expense was 59.5% of adjusted net revenues for the
quarter, compared to 56.4% for the third quarter of 2011, and was
60.2% for the nine months ended September 30, 2012, compared to
59.4% for the nine months ended September 30, 2011.
Non-Compensation Expense
Non-compensation expense was $6.3 million, compared to $7.5
million for the third quarter of 2011. For the nine months ended
September 30, 2012, non-compensation expense was
$17.9 million, compared to $20.2 million for the nine months
ended September 30, 2011. As a percentage of adjusted net revenues,
non-compensation expense was 21.8% for the quarter, compared to
26.8% for the third quarter of 2011, and was 19.6% for the nine
months ended September 30, 2012, compared to 18.4% for the nine
months ended September 30, 2011.
Personnel
At September 30, 2012, the company had 217 full-time employees,
compared to 214 at the end of the prior quarter and 215 at
September 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 $7.5 million and $21.6 million for the
quarter and nine months ended September 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 $0.7 million taken with regard to Harvest
Capital Credit for the quarter and nine months ended September 30,
2012, respectively;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments 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 nine months ended September 30, 2012
and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2012 June 30, 2012 Sept. 30, 2011 Sept. 30, 2012
Sept. 30, 2011 Revenues: Non-interest revenues $
19,885 $ 28,235 $ 18,948 $ 81,628 $ 92,399 Net interest income
(1,754 ) (1,618 ) (1,573 ) (5,522 )
(661 ) Total net revenues 18,131 26,617 17,375 76,106 91,738
Asset management fees earned on Harvest
Growth Capital and Harvest Capital Credit (1)
597 353 203 1,281 609
Dividend distribution from Harvest Capital
Credit (1)
157 - - 234 -
Less: Net interest income and other
revenues from Harvest Capital Credit (1)
(772 ) (475 ) - (1,586 )
-
Total net revenues including fee revenues
from consolidated entities
18,113 26,495 17,578
76,035 92,347 Add
back/(subtract):
Net amortization of liquidity discounts on
loans and asset-backed securities issued
7,456 7,000 6,363 21,631 16,903 Amortization of intangible asset -
- - - 200 Loan loss provision – Harvest Capital Credit 137 322 32
678 32
Net unrealized loss/(gain) on strategic
equity investments and warrants
107 447 1,141 233 (80 )
Non-controlling interest in net unrealized
loss/(gain) on Harvest Growth Capital
3,021 (6,520 ) 2,984
(6,859 ) 219 Adjusted net revenues 28,834
27,744 28,098 91,718
109,621 Subtract: Net gain/(loss) on
loan portfolio acquired 449 (183 ) 995
973 12,958
Adjusted net revenues excluding net gain
on loan portfolio acquired
$ 28,385 $ 27,927 $ 27,103 $ 90,745 $
96,663
(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 nine months ended September 30, 2012 and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2012 June 30, 2012 Sept. 30, 2011 Sept. 30, 2012
Sept. 30, 2011 Base management fees: Fees reported as
asset management fees $ 2,195 $ 2,462 $ 2,519 $ 7,094 $ 7,108 Fees
reported as other income 339 606 937 1,654 1,923
Fees earned at Harvest Growth Capital and
Harvest Capital Credit
275 241 203 717 609 Total base
management fees 2,809 3,309 3,659 9,465
9,640 Incentive fees: Fees reported as asset
management fees 1,560 1,030 3,175 3,627 7,785 Fees reported as
other income - - 29 - 381
Fees earned at Harvest Growth Capital and
Harvest Capital Credit
322 112 - 564 - Total incentive
fees 1,882 1,142 3,204 4,191
8,166 Other fee income: Fundraising fees 26 26 60 79 232 New
York Mortgage Trust termination fee - 1,735 -
1,735 - Total other fee income 26 1,761
60 1,814 232 Asset management-related
fee revenues: All fees reported as asset management fees 3,755
3,492 5,694 10,721 14,893 All fees reported as other income 365
2,367 1,026 3,468 2,536
All fees earned at Harvest Growth Capital
and Harvest Capital Credit
597 353 203 1,281 609
Total asset management-related fee
revenues
$ 4,717 $ 6,212 $ 6,923 $ 15,470 $ 18,038
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 $0.6 million for the quarter and nine months ended
September 30, 2012, respectively;
- the non-cash net amortization of
liquidity discounts at JMP Credit, due to scheduled contractual
principal repayments, of $7.5 million and $21.6 million for the
quarter and nine months ended September 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 $47,000 and $0.3 million, after non-controlling interest, for
the quarter and nine months ended September 30, 2012 taken with
regard to Harvest Capital Credit;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments 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 nine months ended September 30, 2012 and
for comparable prior periods are set forth below.
Quarter Ended (in thousands, except per share amounts) Sept.
30, 2012 June 30, 2012 Sept. 30, 2011 Net
(loss) attributable to JMP Group Inc.
$
(1,676
)
$
(1,625
)
$
(1,623
) Add back: Income tax (benefit) (894 ) (975 )
(1,410 ) (Loss) before taxes (2,570 ) (2,600 ) (3,033 )
Add back/(subtract):
Compensation expense – post-IPO RSUs
194 208 112
Net amortization of liquidity discounts on
loans and asset-backed securities issued
7,456 7,000 6,363 Loan loss provision – Harvest Capital Credit 47
117 21
Unrealized loss on strategic equity
investments and warrants
107 447 1,141 Operating
income before taxes 5,234 5,172 4,604 Income tax expense
(assumed rate of 42%) 2,198 2,172
1,934 Operating net income $ 3,036 $ 3,000
$ 2,670 Operating net income per share: Basic
$ 0.13 $ 0.13 $ 0.12 Diluted $ 0.13 $ 0.13 $ 0.12 Weighted
average shares outstanding: Basic 22,737 22,772 22,354 Diluted
22,830 22,859 22,493 Nine Months Ended (in thousands,
except per share amounts) Sept. 30, 2012 Sept. 30, 2011
Net (loss)/income attributable to JMP Group Inc.
$
(2,949
) $ 3,433 Add back: Income tax (benefit)/expense
(1,547 ) 2,354 (Loss)/income before taxes (4,496 )
5,787 Add back/(subtract): Compensation expense –
IPO-related RSUs - 778 Compensation expense – post-IPO RSUs 582 360
Net amortization of liquidity discounts on
loans and asset-backed securities issued
21,631 16,903 Amortization of intangible asset - 200 Loan loss
provision – Harvest Capital Credit 258 21
Unrealized loss/(gain) on strategic equity
investments and warrants
233 (80 ) Operating income before taxes 18,208
23,969 Income tax expense (assumed rate of 42%) 7,647
10,067 Operating net income $ 10,561 $
13,902 Operating net income per share: Basic $ 0.47 $
0.63 Diluted $ 0.46 $ 0.61 Weighted average shares
outstanding: Basic 22,564 22,152 Diluted 22,977 22,634
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 nine months ended
September 30, 2012 and for comparable prior periods are set forth
below.
Quarter Ended (in thousands, except per share amounts) Sept.
30, 2012 June 30, 2012 Sept. 30, 2011
Operating net income $ 3,036 $ 3,000 $ 2,670 Add back:
Income tax expense (assumed rate of 42%) 2,198 2,172
1,934 Operating income before taxes 5,234 5,172 4,604
Subtract: Earnings/(loss) from gains on loan portfolio
acquired 269 (110 ) 596 Adjusted operating
income before taxes 4,965 5,282 4,008 Income tax expense
(assumed rate of 42%) 2,085 2,218 1,683
Adjusted operating net income $ 2,880 $ 3,064 $ 2,325
Adjusted operating net income per share: Basic $ 0.13 $ 0.13 $ 0.10
Diluted $ 0.13 $ 0.13 $ 0.10 Weighted average shares
outstanding: Basic 22,737 22,772 22,354 Diluted 22,830 22,859
22,493 Nine Months Ended (in thousands, except per share
amounts) Sept. 30, 2012 Sept. 30, 2011 Operating net
income $ 10,561 $ 13,902 Add back: Income tax expense
(assumed rate of 42%) 7,647 10,067 Operating income
before taxes 18,208 23,969 Subtract: Earnings from gains on
loan portfolio acquired 584 7,775 Adjusted operating
income before taxes 17,624 16,194 Income tax expense
(assumed rate of 42%) 7,402 6,801 Adjusted operating
net income $ 10,222 $ 9,393 Adjusted operating net income
per share: Basic $ 0.45 $ 0.42 Diluted $ 0.44 $ 0.41
Weighted average shares outstanding: Basic 22,564 22,152 Diluted
22,977 22,634
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 nine months ended September 30, 2012 are
set forth below.
Quarter Ended September 30, 2012
(in thousands, except per share
amounts) JMPSecurities HarvestCapitalStrategies JMPCreditCorp.
Corporate Elimin-ations OperatingJMPGroup HGCConsoli-dation
HCCConsoli-dation Consoli-dated JMPGroup Revenues:
Investment banking $ 12,233 - - - - $ 12,233 -
$
(15
) $ 12,218 Brokerage 5,371 - - - - 5,371 - - 5,371
Asset management-related fees (1)
53 $ 4,781 $ 30 $ 19
$
(166
) 4,717
$
(357
) (240 ) 4,120
Principal transactions (2)
41 624 4 515 - 1,184 (3,021 ) (11 ) (1,848 ) Gain on sale and
payoff of loans - - 204 - - 204 - - 204 Net dividend income (2 ) $
157 - - - 155 - (157 ) (2 )
Net interest income (3)
(9 ) 75 4,789 50 - 4,905 - 797 5,702
Provision for loan losses (4)
- - 65 - -
65 - - 65
Adjusted net revenues 17,687 5,637 5,092 584 (166 ) 28,834 (3,378 )
374 25,830 Expenses:
Non-interest expenses (5)
16,522 4,812 (639 ) 2,860 (166 ) 23,389 21 32 23,442
Less: Non-controlling interest (6)
- - 211 - -
211 (3,399 ) 342 (2,846 )
Operating income before taxes 1,165 825 5,520 (2,276 ) - 5,234 - -
5,234
Income tax expense/(benefit) (assumed rate
of 42%)
490 346 2,318 (956 )
- 2,198 - -
2,198 Operating net income/(loss) $ 675 $ 479 $ 3,202
$
(1,320
) - $ 3,036 - - $ 3,036
Operating net income/(loss) per share: Basic $ 0.03 $
0.02 $ 0.14
$
(0.06
) - $ 0.13 - - $ 0.13 Diluted $ 0.03 $ 0.02 $ 0.14
$
(0.06
) - $ 0.13 - - $ 0.13 Reconciliation to Adjusted Operating
Net Income Operating income before taxes $ 5,520 $ 5,234 $
5,234
Less: Earnings contribution from gain on
loan portfolio acquired
269 269 269
Adjusted operating income before taxes
5,251 4,965 4,965
Income tax expense (assumed rate of
42%)
2,205 2,085 2,085 Adjusted
operating net income $ 3,046 $ 2,880 $ 2,880
Adjusted operating net income/(loss) per
share:
Basic $ 0.03 $ 0.02 $ 0.14
$
(0.06
) - $ 0.13 - - $ 0.13 Diluted $ 0.03 $ 0.02 $ 0.14
$
(0.06
) - $ 0.13 - - $ 0.13 (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
losses totaling $3.0 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 $0.1 million. (5) Reverses stock-based
compensation expense and excludes fund-related expenses totaling
$0.1 million that are recognized upon consolidation of Harvest
Growth Capital and Harvest Capital Credit. (6) Excludes
non-controlling interests totaling $3.1 million in the net realized
and unrealized losses of Harvest Growth Capital and Harvest Capital
Credit that are recognized upon consolidation of the entities.
Nine Months Ended September 30, 2012
(in thousands, except per
share amounts) JMPSecurities HarvestCapitalStrategies
JMPCreditCorp. Corporate Elimin-ations OperatingJMPGroup
HGCConsoli-dation HCCConsoli-dation Consoli-dated JMPGroup
Revenues: Investment banking $ 38,151 - - - - $ 38,151 -
$
(141
) $ 38,010 Brokerage 16,275 - - - - 16,275 - - 16,275
Asset management-related fees (1)
27 $ 15,807 $ 92
$
(35
)
$
(421
) 15,470
$
(759
) (483 ) 14,228
Principal transactions (2)
337 3,371 249 1,806 - 5,763 6,859 (77 ) 12,545 Gain on sale and
payoff of loans - - 2,643 - - 2,643 - - 2,643 Net dividend income
(25 ) 234 - - - 209 - (234 ) (25 )
Net interest income (3)
41 156 14,003 142 - 14,342 - 1,764 16,106
Provision for loan losses (4)
- - (1,135 ) - -
(1,135 ) - -
(1,135 ) Adjusted net revenues 54,806 19,568 15,852 1,913 (421 )
91,718 6,100 829 98,647 Expenses:
Non-interest expenses (5)
49,630 15,415 (1,321 ) 9,725 (421 ) 73,028 66 92 73,186
Less: Non-controlling interest (6)
- - 482 - -
482 6,034 737
7,253 Operating income before taxes 5,176 4,153
16,691 (7,812 ) - 18,208 - - 18,208
Income tax expense/(benefit) (assumed rate
of 42%)
2,174 1,743 7,011 (3,281
) - 7,647 - -
7,647 Operating net income/(loss) $ 3,002
$ 2,410 $ 9,680
$
(4,531
) - $ 10,561 - - $
10,561 Operating net income/(loss) per share: Basic $
0.13 $ 0.11 $ 0.43
$
(0.20
) - $ 0.47 - - $ 0.47 Diluted $ 0.13 $ 0.10 $ 0.43
$
(0.20
) - $ 0.46 - - $ 0.46 Reconciliation to Adjusted Operating
Net Income Operating income before taxes $ 16,691 $ 18,208 $
18,208
Less: Earnings contribution from gain on
loan portfolio acquired
584 584 584
Adjusted operating income before taxes
16,107 17,624 17,624
Income tax expense (assumed rate of
42%)
6,765 7,402 7,402
Adjusted operating net income $ 9,342 $ 10,222 $
10,222
Adjusted operating net income/(loss) per
share:
Basic $ 0.13 $ 0.11 $ 0.41
$
(0.20
) - $ 0.45 - - $ 0.45 Diluted $ 0.13 $ 0.10 $ 0.41
$
(0.20
) - $ 0.44 - - $ 0.44 (1) Reflects revenues detailed in section
above titled “Asset Management-Related Fee Revenues;” management
fees totaling $1.2 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 $6.8 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 $0.7 million. (5) Reverses stock-based
compensation expense and excludes fund-related expenses totaling
$0.2 million that are recognized upon consolidation of Harvest
Growth Capital and Harvest Capital Credit. (6) Excludes
non-controlling interests totaling $6.8 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 September 30, 2012, JMP Group’s tangible book value per share
was $5.32, compared to $5.43 at June 30, 2012 and $5.80 at
September 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 September 30, 2012 would have been $4.86, as
indicated by the table below.
(in thousands, except per share amounts) Sept. 30, 2012
June 30, 2012 Sept. 30, 2011 Total JMP Group
stockholders' equity $ 120,791 $ 123,385 $ 128,448 Less: Goodwill
and intangible assets - - -
Tangible stockholders' equity 120,791 123,385 128,448
Liquidity discount on loans 6,484 7,582 18,392 Liquidity discount
on asset-backed securities issued (24,543 ) (33,097 )
(57,284 ) Net liquidity discount (18,059 ) (25,515 ) (38,892
) Income tax benefit (assumed rate of 42%) 7,585
10,716 16,335 Net after-tax liquidity
discount (10,474 ) (14,799 ) (22,557 )
Adjusted tangible stockholders' equity $ 110,317 $ 108,586
$ 105,891 Adjusted tangible book value per
share $ 4.86 $ 4.77 $ 4.78 Basic shares
outstanding 22,706 22,742 22,147 Quarterly operating ROATE
(1) 11.1 % 11.0 % 10.0 % LTM operating ROATE (1) 12.7 % 12.5 % 21.5
%
Quarterly operating ROATE (1) excluding
the financial impact of gains on acquired loans
10.5 % 11.2 % 8.7 %
LTM operating ROATE (1) excluding the
financial impact of gains on acquired loans
12.4 % 11.9 % 13.0 % (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 September 30, 2012, JMP Group
repurchased approximately 59,000 shares of its common stock at an
average price of $5.57 per share, or $0.3 million in total. At
quarter-end, approximately 400,000 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 or
losses 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; including, but not limited to, 2012
earnings, fourth quarter performance, market share increases,
advisory revenues, extinguishment of net amortization expense
related to liquidity discounts on loans, and the company's growth
initiatives. Forward-looking statements are subject to known and
unknown risks and uncertainties that could cause actual results to
differ materially from those expected or implied by the
forward-looking statements. The company’s actual results could
differ materially from those anticipated in forward-looking
statements for many reasons, including the factors described in the
sections entitled “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in the
company’s Form 10-K for the year ended December 31, 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, October 24, 2012.
To participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
48859762.
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) Sept. 30, 2012 Dec. 31, 2011
Assets Cash and cash equivalents $ 59,690 $ 70,363
Restricted cash and deposits 63,461 48,440 Receivable from clearing
broker 1,113 1,138 Marketable securities owned, at fair value
14,482 24,309 Other investments 76,288 51,706 Loans held for sale
3,219 2,957
Loans collateralizing asset-backed
securities issued, net of purchase discounts and allowance for loan
losses
402,241 410,770 Small business loans, net of allowance for loan
losses 24,645 7,477 Deferred tax assets 16,650 26,221 Other assets
22,693 17,240 Total assets $ 684,482 $ 660,621
Liabilities and Stockholders' Equity Liabilities: Marketable
securities sold, but not yet purchased, at fair value $ 11,383 $
10,921 Accrued compensation 32,517 38,143 Asset-backed securities
issued, net of purchase discounts 406,461 381,556 Note payable
22,657 19,222 Deferred tax liability 12,736 23,214 Other
liabilities 24,918 31,081 Total liabilities
510,672 504,137 Redeemable non-controlling interest
161 50 Stockholders' Equity: Total JMP Group
Inc. stockholders' equity 120,791 129,705 Non-redeemable
non-controlling interest 52,858 26,729 Total equity
173,649 156,434 Total liabilities and stockholders'
equity $ 684,482 $ 660,621
JMP GROUP INC.
Consolidated Statements of
Operations
(Unaudited)
Quarter Ended Nine Months Ended (in
thousands, except per share amounts) Sept. 30, 2012 Sept. 30, 2011
Sept. 30, 2012 Sept. 30, 2011 Revenues: Investment banking $
12,218 $ 10,048 $ 38,010 $ 40,332 Brokerage 5,371 6,898 16,275
19,370 Asset management fees 3,755 5,694 10,721 14,893 Principal
transactions (1,955 ) (6,290 ) 12,309 (106 ) Gain on sale and
payoff of loans 204 1,373 2,643 14,981 Net dividend
(expense)/income (2 ) 322 (25 ) 870 Other income 365
1,026 3,507
2,536 Non-interest revenues 19,956
19,071 83,440
92,876 Interest income 8,333 7,451 24,051 25,799
Interest expense (10,087 ) (9,024 )
(29,573 ) (26,460 ) Net interest
(expense)/income (1,754 ) (1,573 )
(5,522 ) (661 ) Provision for loan
losses (71 ) (123 )
(1,812 ) (477 ) Total net revenues 18,131
17,375 76,106
91,738 Non-interest expenses: Compensation and
benefits 17,358 15,970 55,833 66,218 Administration 1,645 2,246
4,604 5,060 Brokerage, clearing and exchange fees 902 1,275 2,656
3,552 Travel and business development 746 1,107 2,435 2,568
Communications and technology 909 1,013 2,642 2,929 Occupancy 814
774 2,352 2,216 Professional fees 967 806 2,324 2,311 Depreciation
227 192 642 529 Impairment loss on intangible asset - - - 700 Other
67 105 282
343 Total non-interest expenses
23,635 23,488 73,770
86,426 Income before income tax expense
(5,504 ) (6,113 ) 2,336 5,312 Income tax (benefit)/expense
(894 ) (1,410 ) (1,547 )
2,354 Net income (4,610 ) (4,703 ) 3,883 2,958 Less: Net
income attributable to noncontrolling interest (2,934
) (3,080 ) 6,832 (475 )
Net (loss)/income attributable to JMP Group Inc.
$
(1,676
)
$
(1,623
)
$
(2,949
) $ 3,433 Net (loss)/income attributable to JMP Group
Inc. per share: Basic
$
(0.07
)
$
(0.07
)
$
(0.13
) $ 0.15 Diluted
$
(0.07
)
$
(0.07
)
$
(0.13
) $ 0.15
Weighted average common shares
outstanding:
Basic
22,737
22,354
22,564
22,152
Diluted
22,830
22,493
22,977
22,634
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