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, 2013.
- Operating net income was $3.3 million,
or $0.15 per diluted share, compared to $3.0 million, or $0.13 per
share, for the second quarter of 2012. For the six months ended
June 30, 2013, operating net income was $6.9 million, or $0.31 per
share, compared to $7.5 million, or $0.33 per share, for the six
months ended June 30, 2012. For more information on operating net
income, including a reconciliation to net loss attributable to JMP
Group, please see the section below titled “Non-GAAP Financial
Measures.”
- Excluding a one-time, after-tax expense
of $0.03 per share related to the initial public offering of
Harvest Capital Credit Corporation (NASDAQ: HCAP) in May, operating
net income would have been $0.18 per share and $0.34 per share for
the quarter and six months ended June 30, 2013, respectively.
- The net loss attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $1.4
million, or $0.06 per share, compared to a net loss of $1.6
million, or $0.07 per share, for the second quarter of 2012. For
the six months ended June 30, 2013, the net loss was $3.2 million,
or $0.14 per share, compared to a net loss of $1.3 million, or
$0.06 per share, for the six months ended June 30, 2012.
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were $38.1
million, compared to $27.7 million for the second quarter of 2012.
For the six months ended June 30, 2013, adjusted net revenues were
$70.1 million, compared to $62.9 million for the six months ended
June 30, 2012. 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
$30.9 million and $54.2 million for the quarter and six months
ended June 30, 2013, respectively, compared to $26.9 million and
$58.5 million for the quarter and six months ended June 30, 2012,
respectively.
“JMP Group had a great second quarter,” said Chairman and Chief
Executive Officer Joe Jolson. “Excluding an after-tax expense of
$0.03 relating to the successful IPO of Harvest Capital Credit in
May, operating EPS increased by 38% from a year ago to $0.18,
driven by a similar year-over-year increase of 37% in adjusted net
revenues. JMP Securities produced record revenues for the quarter,
as our market share gains since 2009 positioned us to benefit from
an improving capital markets environment and more than offset a
decline in net investment income and incentive fees during the
period. We were particularly pleased to see that positive client
reaction to management changes recently made in our institutional
equities business led to improved results more quickly than we had
expected.”
Segment Results of Operations
At JMP Securities, adjusted net revenues excluding net
investment income (which consists of principal transactions, net
dividend income and net interest income) were $28.3 million, an
increase of 93.5% from the second quarter of 2012 as a result of
very strong investment banking results and materially improved
institutional commissions. JMP Securities’ operating margins on
adjusted net revenues were 16.8% and 14.1% for the quarter and six
months ended June 30, 2013, respectively, comparing favorably to
9.2% for the full year of 2012.
At Harvest Capital Strategies, adjusted net revenues of $4.1
million excluding net investment income fell 35.9% from the second
quarter of 2012, when a fee of $1.7 million was received from New
York Mortgage Trust, Inc. upon the termination of its advisory
agreement with Harvest Capital Strategies. Operating net income at
Harvest Capital Strategies would have been $0.02 per share for the
quarter in the absence of a one-time, after-tax expense of $0.03
per share associated with the IPO of Harvest Capital Credit. JMP
Group’s return on the capital it had invested in hedge funds
managed by Harvest Capital Strategies was 1.0% for the quarter and
4.2% for the six months ended June 30, 2013.
At JMP Credit, adjusted net revenues totaled $4.8 million, a
decrease of 5.2% from $5.1 million for the second quarter of 2012.
Included in the aforementioned $4.8 million is a valuation
write-down of $0.4 million related to a loan acquired by JMP
Credit in April 2009. For the second quarter of 2012, the net gain
on acquired loans was $0.8 million.
A summary of JMP Group’s operating net income by segment for the
quarter and six months ended June 30, 2013 and for comparable
prior periods is set forth below.
Quarter Ended Six Months Ended ($ as shown)
June 30, 2013 Mar. 31, 2013 June 30, 2012 June 30,
2013 June 30, 2012 JMP Securities $0.13 $0.05 $0.01
$0.18 $0.10 Harvest Capital Strategies (0.01 ) 0.04 0.05 0.02 0.08
JMP Credit 0.13 0.15 0.14 0.29 0.29 Corporate (0.10 ) (0.08 ) (0.07
) (0.18 ) (0.14 ) Operating EPS $0.15 $0.16 $0.13
$0.31 $0.33
For more information on segment reporting; adjusted net
revenues, including a reconciliation to net revenues; and operating
net income, including a reconciliation to net income, please see
the section below titled “Non-GAAP Financial Measures.”
Composition of Revenues
Investment Banking
Investment banking revenues were a record $21.1 million, an
increase of 130.6% from $9.1 million for the second quarter of
2012. For the six months ended June 30, 2013, investment banking
revenues were $33.2 million, an increase of 28.6% from $25.8
million for the six months ended June 30, 2012.
A summary of the company’s investment banking revenues and
transaction counts for the quarter and six months ended June, 2013
and for comparable prior periods is set forth below.
Quarter Ended Six Months Ended June 30, 2013
Mar. 31, 2013 June 30, 2012 June 30, 2013 June 30,
2012 ($ in thousands) Count Revenues Count Revenues
Count Revenues Count Revenues Count Revenues
Public equity 37 $9,517 33 $8,914 16 $6,728 70 $18,431 39
$15,752
Debt and convertible securities
8 4,890 10 1,648 5 642 18 6,538 10 2,101
Private capital markets and other
2 2,830 - 145 3 1,047 2 2,975 5 3,247 Strategic advisory 4 3,820 1
1,400 1 716 5 5,220 6 4,692 Total 51 $21,057 44 $12,107 25
$9,133 95 $33,164 60 $25,792
Brokerage
Net brokerage revenues were $7.0 million, an increase of 29.0%
from $5.4 million for the second quarter of 2012, representing the
company’s best quarterly total since the fourth quarter of 2010.
For the six months ended June 30, 2013, net brokerage revenues were
$12.2 million, an increase of 11.6% from $10.9 million for the
six months ended June 30, 2012, representing the company’s best
six-month total since the second half of 2011.
Asset Management
Asset management fees and other related revenues were $4.1
million, a decrease of 33.9% from $6.2 million for the second
quarter of 2012. For the six months ended June 30, 2013, such fees
and revenues were $12.0 million, an increase of 11.1% from
$10.8 million for the six months ended June 30, 2012. 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, 2013 totaled $1.6
billion, including $819.3 million of funds managed by Harvest
Capital Strategies and $800.6 million par value of loans and cash
underlying the two collateralized loan obligations managed by JMP
Credit Advisors. Client assets under management were $1.2 billion
at March 31, 2013 and $1.1 billion at June 30, 2012. Including
sponsored funds, client assets under management totaled $1.8
billion at June 30, 2013, compared to $1.4 billion at March 31,
2013 and $1.6 billion at June 30, 2012.
At June 30, 2013, private capital, including corporate credit,
small business lending, venture capital and REIT advisory services,
represented 62.6% of client assets under management including
sponsored funds.
Principal Transactions
Principal transactions generated net realized and unrealized
gains of $2.3 million and $4.2 million for the quarter and six
months ended June 30, 2013, respectively, compared to $7.8 million
and $14.3 million for the quarter and six months ended June 30,
2012, respectively.
A summary of the company’s principal transaction revenues for
the quarter and six months ended June 30, 2013 and for
comparable prior periods is set forth below.
Quarter Ended
Six Months Ended
(in thousands) June 30, 2013 Mar. 31, 2013 June 30,
2012 June 30, 2013
June 30, 2012
Hedge fund investments $908 $1,898 ($248 )
$2,806 $2,496 Principal investments: Investment in
Harvest Capital Credit (136 ) - - (136 ) - Other principal
investments 55 85 901 140 582 Total
principal investments (81 ) 85 901 4 582
Venture investments:
Investment in Harvest Growth Capital
funds
86 (19 ) 328 67 525 Other venture investments and warrants 485
553 279 1,038 781 Total venture
investments 571 534 607 1,105 1,306
Principal transaction revenues net of
non-controlling interests in Harvest Growth Capital funds
1,398 2,517 1,260 3,915 4,384
Non-controlling interests in Harvest
Growth Capital funds
895 (599 ) 6,520 296 9,880 Total
principal transaction revenues $2,293 $1,918 $7,780
$4,211 $14,264
Included in the net gain of $2.3 million for the quarter ended
June 30, 2013 was a gain of $0.9 million attributable to
non-controlling interests in net realized and unrealized losses at
Harvest Growth Capital and Harvest Growth Capital II, venture
capital funds managed by Harvest Capital Strategies that are
consolidated under GAAP. GAAP accounting requires that JMP Group
consolidate both funds due to Harvest Capital Strategies’ role as
the funds’ manager and managing member, despite the company’s
ownership of just 4.4% of Harvest Growth Capital and 1.9% of
Harvest Growth Capital II. The presentation of adjusted net
revenues elsewhere in this press release excludes JMP Group’s
non-controlling interests in these funds; and, accordingly, the
aforementioned gain of $0.9 million is not included in adjusted net
revenues. Net of its non-controlling interests, JMP Group had a net
realized and unrealized gain of $86,000 on its investments in
Harvest Growth Capital and Harvest Growth Capital II 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 Sale, Payoff and Mark-to-Market of Loans and Loan Loss
Provision
Together, JMP Credit Corporation and Harvest Capital Credit
generated net realized and unrealized gains of $0.3 million and
$1.4 million from the sale, payoff or mark-to-market of loans for
the quarter and six months ended June 30, 2013, respectively,
compared to $1.4 million and $2.5 million for the quarter and
six months ended June 30, 2012, respectively.
For the quarter ended June 30, 2013, JMP Credit Corporation
realized a net gain of $0.3 million due to the sale or payoff
of 34 of the loans in its portfolio, compared to $1.4 million
in connection with 19 loans for the second quarter of 2012. For the
six months ended June 30, 2013, the net realized gain amounted to
$1.3 million due to the sale or payoff of 67 loans, compared
to $2.4 million in connection with 39 loans for the six months
ended June 30, 2012. For the quarter and six months ended June 30,
2013, net realized gains of $23,000 and $0.2 million,
respectively, resulted from the sale or payoff of loans acquired by
JMP Credit in April 2009, compared to net realized gains of
$0.8 million and $1.5 million, respectively, for the
quarter and six months ended June 30, 2012.
At June 30, 2013, discounts and reserves (including liquidity
discounts, allowances for loan losses and deferred loan fees)
equaled $10.1 million, or 1.6% of gross performing loans
outstanding at JMP Credit. There were no impaired loans and no
associated discounts or reserves at June 30, 2013; while, at June
30, 2012, discounts and reserves (including credit discounts,
liquidity discounts, and allowances for loan losses) with regard to
impaired loans equaled $3.3 million, or 0.8% of gross loans
outstanding.
A net loan loss provision of $1.0 million for the quarter ended
June 30, 2013 was recorded at JMP Credit, which is consolidated
under GAAP, of which $1.1 million was a general reserve in
connection with the loan portfolio underlying recently closed JMP
Credit Advisors CLO II. At June 30, 2013, general loan loss
reserves equaled 0.5% of gross performing loans at JMP Credit, in
line with 0.5% at June 30, 2012.
Other Income
Other income was $26,000 and $0.3 million for the quarter and
six months ended June 30, 2013, respectively, compared to $2.4
million and $3.1 million for the quarter and six months ended June
30, 2012, respectively. The year-over-year comparisons are uneven
primarily because, in the second quarter of 2012, New York Mortgage
Trust, Inc. paid a one-time fee of $1.7 million upon termination of
its advisory agreement with Harvest Capital Strategies.
Net Interest Income
Interest income was $7.7 million, and interest expense was $10.1
million, resulting in net interest expense of $2.4 million,
compared to net interest expense of $1.6 million for the second
quarter of 2012. Excluding net amortization expense related to
liquidity discounts, net interest income was $3.8 million, compared
to $5.4 million for the second quarter of 2012. Further excluding
the financial impact of the deconsolidation of Harvest Capital
Credit upon its IPO, net interest income would have been $5.1
million, compared to $5.4 million for the second quarter of 2012.
For the six months ended June 30, 2013, net interest expense was
$5.5 million, compared to net interest expense of $3.8 million for
the six months ended June 30, 2012; excluding net interest expense
due to net amortization of liquidity discounts, net interest income
was $9.4 million and $10.4 million, respectively, for the same
periods.
Expenses
Compensation and Benefits
Compensation and benefits expense was $24.8 million, compared to
$16.7 million for the second quarter of 2012. Non-cash compensation
expense attributable to stock-based awards such as stock options
and restricted stock units, or RSUs, was $1.0 million, compared to
$0.2 million for the second quarter of 2012. The aforementioned
compensation and benefits expense of $24.8 million excludes
$1.1 million of net deferred compensation, which is composed
of (a) amortization expense tied to deferred compensation awarded
at year-end 2012 though recognized as a GAAP expense in 2013 and
2014 less (b) one quarter of the compensation assumed to be awarded
at year-end 2013 and deferred into 2014 and 2015.
For the six months ended June 30, 2013, compensation and
benefits expense was $44.4 million, compared to $38.5 million for
the six months ended June 30, 2012. Non-cash compensation expense
attributable to stock-based awards such as stock options and
restricted stock units, or RSUs, was $1.7 million, compared to
$0.4 million for the six months ended June 30, 2012. The
aforementioned compensation and benefits expense of $44.4 million
excludes $2.3 million of net deferred compensation, which is
composed of (a) amortization expense tied to deferred compensation
awarded at year-end 2012 though recognized as a GAAP expense in
2013 and 2014 less (b) two quarters of the compensation assumed to
be awarded at year-end 2013 and deferred into 2014 and 2015.
Excluding the cost of stock-based awards but accelerating and
recognizing the cost of net deferred compensation for the period,
compensation and benefits expense was 65.6% of adjusted net
revenues for the quarter, compared to 59.5% for the second quarter
of 2012, and was 64.1% for the six months ended June 30, 2013,
compared to 60.6% for the six months ended June 30, 2012.
Non-Compensation Expense
Non-compensation expense was $9.0 million, compared to $6.0
million for the second quarter of 2012. For the six months ended
June 30, 2013, non-compensation expense was $15.1 million, compared
to $11.7 million for the six months ended June 30, 2012. The
year-over-year increases for both periods are largely due to
one-time expenses totaling $2.5 million incurred by JMP Group in
connection with Harvest Capital Credit’s May 2013 initial public
offering.
As a percentage of adjusted net revenues, non-compensation
expense was 23.6% for the quarter, compared to 21.6% for the second
quarter of 2012, and was 21.6% for the six months ended June 30,
2013, compared to 18.5% for the six months ended June 30, 2012.
Excluding the aforementioned expense of $2.5 million,
non-compensation expense would have been 17.0% for the quarter and
18.1% for the six months ended June 30, 2013, respectively.
Personnel
At June 30, 2013, the company had 218 full-time employees, in
line with 218 at March 31, 2013 and up from 214 at June 30,
2012.
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. Furthermore, company management believes that this
presentation enables more 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
generally 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, both
GAAP measures of JMP Group’s 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, Harvest Growth Capital II and Harvest Capital Credit
(until its IPO on May 2, 2013), (ii) excludes the net amortization
of liquidity discounts on loans held and asset-backed securities
issued by JMP Credit Advisors CLO I, (iii) reverses the general
loan loss provision taken in connection with the origination of JMP
Credit Advisors CLO II, (iv) adjusts for unrealized mark-to-market
gains and losses recorded at Harvest Capital Credit, (v) reverses
net unrealized gains and losses on strategic equity investments and
warrants, and (vi) excludes the non-controlling interest in net
unrealized gains and losses on Harvest Growth Capital and Harvest
Growth Capital II. In particular, adjusted net revenue adjusts
for:
- base management and incentive fees
earned by Harvest Capital Strategies as manager of Harvest Growth
Capital and Harvest Growth Capital II, both venture capital funds,
and Harvest Capital Credit, a small business lending strategy;
Harvest Capital Strategies is managing member of Harvest Growth
Capital and Harvest Growth Capital II and is the external manager
of Harvest Capital Credit, and, as a result of its ownership of
each (until the IPO of Harvest Capital Credit on May 2, 2013), JMP
Group has consolidated the three entities (for the appropriate
periods) in accordance with GAAP accounting standards and has
eliminated the fees in consolidation; presenting these fees as
though Harvest Growth Capital, Harvest Growth Capital II 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 associated with JMP Credit Advisors CLO I, due
to scheduled contractual principal repayments, of $6.2 million and
$15.0 million for the quarter and six months ended June 30,
2013, respectively;
- the non-specific, non-cash loan loss
provision recorded with regard to the loan portfolio underlying JMP
Credit Advisors CLO II, which is required by GAAP;
- unrealized mark-to-market gains or
losses on the investment portfolio at Harvest Capital Credit by
reversing them; then, reflecting the company’s IPO, recognizing
those previously reversed gains or losses as of May 2, 2013;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments as well as
certain warrant positions; and
- non-controlling interests in net
unrealized gains and losses generated by Harvest Growth Capital and
Harvest Growth Capital II, of which Harvest Capital Strategies is
manager and managing member; under GAAP, JMP Group consolidates the
two funds; however, as presented, unrealized gains and losses that
do not accrue to the company are reversed.
A reconciliation of JMP Group’s net revenues to its adjusted net
revenues for the quarter and six months ended June 30, 2013 and for
comparable prior periods is set forth below.
Quarter Ended Six Months Ended (in thousands) June
30, 2013 Mar. 31, 2013 June 30, 2012 June 30, 2013
June 30, 2012 Revenues: Non-interest revenues $34,273
$27,338 $29,620 $61,611 $63,497 Net interest expense (2,394 )
(3,141 ) (1,618 ) (5,535 ) (3,768 ) Loan loss provision (975 ) (949
) (1,107 ) (1,924 ) (1,200 ) Total net revenues 30,904 23,248
26,895 54,152 58,529
Asset management fees earned on Harvest
Growth Capital funds and Harvest Capital Credit (1)
522 858 353 1,379 685
Dividend distribution from Harvest Capital
Credit (1)
421 257 - 678 77
Less: Net interest income and other
revenues from Harvest Capital Credit (1)
(789 ) (1,327 ) (476 ) (2,116 ) (815 )
Total net revenues including fee revenues
from consolidated entities
31,058 23,036 26,772 54,093 58,476
Add back/(subtract):
Net amortization of liquidity discounts on
loans and asset-backed securities issued
6,239 8,740 7,000 14,979 14,175
Loan loss provision – JMP Credit Advisors
CLO II
1,128 - - 1,128 -
Unrealized mark-to-market (gain)/loss –
Harvest Capital Credit
- (516 ) 44 257
(13
)
Realization of mark-to-market gain –
Harvest Capital Credit
772 - - - -
Net unrealized (gain)/loss on strategic
equity investments and warrants
(243 ) 157 447 (86 ) 126
Non-controlling interests in net
unrealized (gains)/losses on Harvest Growth Capital funds
(895 ) 599 (6,520 ) (296 ) (9,880 ) Adjusted net revenues
$38,059 $32,016 $27,743 $70,075 $62,884
(1)
Adjustments to reflect economic
contributions from two Harvest Growth Capital funds 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 these 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 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, Harvest Growth Capital II and Harvest
Capital Credit. JMP Group consolidates the two Harvest Growth
Capital funds and Harvest Capital Credit (until its IPO on May 2,
2013) in accordance with GAAP accounting standards; however, asset
management fees generated by these entities 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, 2013 and for
comparable prior periods is set forth below.
Quarter Ended Six Months Ended
(in thousands) June 30, 2013 Mar. 31, 2013 June 30, 2012 June 30,
2013 June 30, 2012 Base management fees: Fees reported as
asset management fees $2,552 $2,365 $2,462 $4,917 $4,900 Fees
reported as other income - 262 606 262 1,315
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
595 508 241 1,103 442 Total base management fees 3,147 3,135 3,309
6,282 6,657 Incentive fees: Fees reported as asset
management fees 836 4,387 1,030 5,223 2,066 Fees reported as other
income - - - - -
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
66 350 112
416
243 Total incentive fees 902 4,737 1,142 5,639 2,309 Other
fee income: Fundraising fees 26 26 26 52 53 New York Mortgage Trust
termination fee - - 1,735 - 1,735 Total other fee income 26 26
1,761 52 1,788 Asset management-related fee revenues: All
fees reported as asset management fees 3,388 6,752 3,492 10,140
6,966 All fees reported as other income 26 288 2,367 314 3,103
All fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
661 858 353 1,519 685
Total asset management-related fee
revenues
$4,075 $7,898 $6,212 $11,973 $10,754
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 compensation expense related to stock-based awards and
deferred compensation, (ii) excludes the net amortization of
liquidity discounts on loans held and asset-backed securities
issued by JMP Credit Advisors CLO I, (iii) reverses the general
loan loss provision taken in connection with the origination of JMP
Credit Advisors CLO II, (iv) adjusts for unrealized mark-to-market
gains and losses recorded at Harvest Capital Credit, (v) reverses
net unrealized gains and losses on strategic equity investments and
warrants, and (vi) assumes an effective tax rate. In particular,
operating net income adjusts for:
- the grant of RSUs and stock options
subsequent to the company’s IPO, which together resulted in
non-cash compensation expense of $1.0 million and $1.7 million for
the quarter and six months ended June 30, 2013, respectively;
- net deferred compensation, which, in
order to state non-GAAP earnings as conservatively as possible,
consists of (a) deferred compensation awarded at year-end 2012 and
reflected in operating net income for 2012 though recognized as a
GAAP expense in 2013 and 2014 less (b) compensation assumed to be
awarded at year-end 2013 and deferred into 2014 and 2015;
- the non-cash net amortization of
liquidity discounts associated with JMP Credit Advisors CLO I, due
to scheduled contractual principal repayments, of $6.2 million and
$15.0 million for the quarter and six months ended June 30,
2013, respectively;
- the non-specific, non-cash loan loss
provision recorded with regard to the loan portfolio underlying JMP
Credit Advisors CLO II, which is required by GAAP;
- unrealized mark-to-market gains or
losses on the investment portfolio at Harvest Capital Credit by
reversing them; then, reflecting the company’s IPO, recognizing
those previously reversed gains or losses as of May 2, 2013;
- 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 38% for the quarter ended March 31, 2013 and all
future periods, although an assumed rate of 42% was applied for all
prior periods; the company’s effective tax rate has proved lower
than anticipated as a result of geographic changes in the company’s
revenue mix, with revenues generated in California (at the highest
marginal rate) comprising less of the total in recent years than in
the past.
A reconciliation of JMP Group’s net income to its operating net
income for the quarter and six months ended June 30, 2013 and for
comparable prior periods is set forth below.
Quarter Ended Six Months Ended (in thousands, except
per share amounts) June 30, 2013 Mar. 31, 2013 June
30, 2012 June 30, 2013 June 30, 2012 Net loss
attributable to JMP Group Inc. ($1,435 ) ($1,719 ) ($1,638 )
($3,154 ) ($1,264 ) Subtract: Income tax benefit 644
812 920 1,456 539 Loss before taxes
(2,079 ) (2,531 ) (2,558 ) (4,610 ) (1,803 ) Add
back/(subtract): Compensation expense – stock options 259 137 - 396
- Compensation expense – post-IPO RSUs 704 616 208 1,320 388
Compensation expense – deferred
compensation
(1,146 ) (1,124 ) - (2,270 ) -
Net amortization of liquidity discounts –
JMP Credit Advisors CLO I
6,239 8,740 7,000 14,979 14,175
Loan loss provision – JMP Credit Advisors
CLO II
821 - - 821 -
Unrealized mark-to-market (gain)/loss –
Harvest Capital Credit
- (162 ) 75 (162 ) 87
Realization of mark-to-market gain –
Harvest Capital Credit
772 - - 772 -
Unrealized (gain)/loss on strategic equity
investments and warrants
(243 ) 157 447 (86 ) 126 Operating income
before taxes 5,327 5,833 5,172 11,160 12,973 Income tax
expense assumed 2,024 2,216 2,172 4,240
5,448 Operating net income $3,303 $3,617
$3,000 $6,920 $7,525 Operating net
income per share: Basic $0.15 $0.16 $0.13 $0.31 $0.33 Diluted $0.15
$0.16 $0.13 $0.31 $0.33 Weighted average shares outstanding:
Basic 22,199 22,607 22,772 22,402 22,476 Diluted 22,707 22,905
22,859 22,744 23,057
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.
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 this
presentation enables investors to better understand the separate
but interrelated financial operations of the company’s various
business lines and to more accurately assess the contribution of
each to JMP Group’s aggregate results.
Total net revenues have been adjusted, in part, as detailed
above in the section titled “Adjusted Net Revenue,” and the
resulting adjusted net revenues (i) include asset management fees,
net interest income or expense, and other revenues eliminated upon
the consolidation of Harvest Growth Capital, Harvest Growth Capital
II and Harvest Capital Credit (until its IPO on May 2, 2013), (ii)
exclude the net amortization of liquidity discounts on loans held
and asset-backed securities issued by JMP Credit Advisors CLO I,
(iii) reverse the general loan loss provision taken in connection
with the origination of JMP Credit Advisors CLO II, (iv) adjust for
unrealized mark-to-market gains and losses recorded at 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 and Harvest Growth Capital II. 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 compensation
expense related to stock-based awards granted subsequent to JMP
Group’s initial public offering. For the purposes of calculating
operating net income, an effective tax rate of 38% is assumed.
A statement of JMP Group’s operating net income on a segment
basis for the quarter ended June 30, 2013 is set forth below.
Quarter Ended June 30, 2013 (in thousands, except per share
amounts) JMPSecurities Harvest (1)CapitalStrategies
JMPCreditCorp. Corporate
Elimin-ations
OperatingJMPGroup HGCConsoli-dation
HCC (1)Consoli-dation Consoli-dated JMPGroup
Revenues: Investment banking $21,310 - - - ($253 ) $21,057 -
- $21,057 Brokerage 6,980 - - - - 6,980 - - 6,980 Asset
management-related fees (2) - 4,073 86 - (84 ) 4,075 (386 ) (137 )
3,552 Principal transactions (3) 114 38 9 1,427 - 1,588 864 369
2,821 Gain on sale and payoff of loans - - 336 - - 336 - - 336 Net
dividend (expense)/income (8 ) 421 - 63 - 476 - (421 ) 55 Net
interest (expense)/income (4) (33 ) - 4,206 (779 ) - 3,394 1 450
3,845 Provision for loan losses - - 153 -
- 153 - - 153 Adjusted
net revenues 28,363 4,532 4,790 711 (337 ) 38,059 479 261 38,799
Expenses: Non-interest expense/(income) (5)(7) 23,585 6,540
(147 ) 4,248 (388 ) 33,838 56 47 33,941 Less:
Non-controlling interest (6)(7) - (1,351 ) 245 -
- (1,106 ) 423 214 (469 )
Operating income/(loss) before taxes
4,778 (657 ) 4,692 (3,537 ) 51 5,327 - - 5,327
Income tax expense/(benefit) (assumed rate
of 38%)
1,815 (249 ) 1,783 (1,345 ) 20 2,024 -
- 2,024 Operating net income/(loss) $2,963
($408 ) $2,909 ($2,192 ) $31 $3,303 -
- $3,303
Operating net income/(loss) per share:
Basic $0.13 ($0.01 ) $0.13 ($0.10 ) $0.00 $0.15 - - $0.15 Diluted
$0.13 ($0.01 ) $0.13 ($0.10 ) $0.00 $0.15 - - $0.15
(1)
Harvest Capital Credit is deconsolidated
as of its initial public offering on May 2, 2013. Upon that IPO,
HCAP Advisors was formed to act as Harvest Capital Credit’s
external manager; revenues and expenses generated by HCAP Advisors
are aggregated in the results attributed to Harvest Capital
Strategies in this presentation.
(2)
Reflects revenues detailed in section
above titled “Asset Management-Related Fee Revenues;” management
fees totaling $0.5 million are eliminated upon consolidation of two
Harvest Growth Capital funds and Harvest Capital Credit.
(3)
Reverses net unrealized gains and losses
on strategic equity investments and warrants and includes
previously reversed net unrealized gains at Harvest Capital Credit.
Excludes non-controlling interests in net realized and unrealized
gains and losses related to two Harvest Growth Capital funds as
well as other principal transaction revenues related to Harvest
Capital Credit; net realized and unrealized losses totaling $1.2
million are recognized upon consolidation of those entities.
(4)
Excludes expense related to the non-cash
net amortization of liquidity discounts associated with JMP Credit
Advisors CLO I.
(5)
Reverses stock-based compensation expense
as well as accounting adjustments related to deferred compensation
expense and excludes fund-related expenses totaling $0.1 million
that are recognized upon consolidation of two Harvest Growth
Capital funds and Harvest Capital Credit.
(6)
Excludes non-controlling interests
totaling $0.6 million in the net realized and unrealized losses of
two Harvest Growth Capital funds and Harvest Capital Credit that
are recognized upon consolidation of the entities.
(7)
Includes non-interest expense of $2.5
million and non-controlling interest of $1.2 million, equaling
$0.03 per share after tax in the aggregate, related to the IPO of
Harvest Capital Credit.
A statement of JMP Group’s operating net income on a segment
basis for the six months ended June 30, 2013 is set forth
below.
Six Months Ended June 30, 2013 (in thousands, except per
share amounts) JMPSecurities Harvest (1)CapitalStrategies
JMPCreditCorp. Corporate Elimin-ations
OperatingJMPGroup HGCConsoli-dation HCC
(1)Consoli-dation Consoli-dated JMPGroup
Revenues: Investment banking $33,487 - - - ($323 ) $33,164 - -
$33,164 Brokerage 12,174 - - - - 12,174 - - 12,174 Asset
management-related fees (2) - 12,105 $136 - (268 ) 11,973 (797 )
(584 ) 10,592 Principal transactions (3) 385 662 9 2,756 6 3,818
245 406 4,469 Gain on sale and payoff of loans (4) - - 1,335 - -
1,335 - - 1,335 Net dividend (expense)/income (16 ) 678 - 63 - 725
- (678 ) 47 Net interest (expense)/income (5) (49 ) - 8,839 (1,108
) - 7,682 1 1,760 9,443 Provision for loan losses - -
(796 ) - - (796 ) - - (796 ) Adjusted
net revenues 45,981 13,445 9,523 1,711 (585 ) 70,075 (551 ) 904
70,428 Expenses: Non-interest expense/(income) (6)(8) 39,500
14,079 (1,405 ) 8,237 (566 ) 59,845 93 144 60,082 Less:
Non-controlling interest (7)(8) - (1,351 ) 421 -
- (930 ) (644 ) 760 (814 )
Operating income/(loss) before taxes
6,481 717 10,507 (6,526 ) (19 ) 11,160 - - 11,160
Income tax expense/(benefit) (assumed rate
of 38%)
2,462 273 3,993 (2,481 ) (7 ) 4,240 -
- 4,240 Operating net income/(loss) $4,019
$444 $6,514 ($4,045 ) ($12 ) $6,920 -
- $6,920
Operating net income/(loss) per share:
Basic $0.18 $0.02 $0.29 ($0.18 ) ($0.00 ) $0.31 - - $0.31 Diluted
$0.18 $0.02 $0.29 ($0.18 ) ($0.00 ) $0.31 - - $0.31
(1)
Harvest Capital Credit is deconsolidated
as of its initial public offering on May 2, 2013. Upon that IPO,
HCAP Advisors was formed to act as Harvest Capital Credit’s
external manager; revenues and expenses generated by HCAP Advisors
are aggregated in the results attributed to Harvest Capital
Strategies in this presentation.
(2)
Reflects revenues detailed in section
above titled “Asset Management-Related Fee Revenues;” management
fees totaling $1.4 million are eliminated upon consolidation of two
Harvest Growth Capital funds and Harvest Capital Credit.
(3)
Reverses net unrealized gains and losses
on strategic equity investments and warrants and includes
previously reversed net unrealized gains at Harvest Capital Credit.
Excludes non-controlling interests in net realized and unrealized
gains and losses related to two Harvest Growth Capital funds as
well as other principal transaction revenues related to Harvest
Capital Credit; net realized and unrealized losses totaling $0.7
million are recognized upon consolidation of those entities.
(4)
Excludes net unrealized mark-to-market
gain of $0.1 million on the loan portfolio at Harvest Capital
Credit.
(5)
Excludes expense related to the non-cash
net amortization of liquidity discounts associated with JMP Credit
Advisors CLO I.
(6)
Reverses stock-based compensation expense
as well as accounting adjustments related to deferred compensation
expense and excludes fund-related expenses totaling $0.2 million
that are recognized upon consolidation of two Harvest Growth
Capital funds and Harvest Capital Credit.
(7)
Excludes non-controlling interests
totaling $0.1 million in the net realized and unrealized losses of
two Harvest Growth Capital funds and Harvest Capital Credit that
are recognized upon consolidation of the entities.
(8)
Includes non-interest expense of $2.5
million and non-controlling interest of $1.2 million, equaling
$0.03 per share after tax in the aggregate, related to the IPO of
Harvest Capital Credit.
Adjusted Tangible Book Value per Share
At June 30, 2013, JMP Group’s tangible book value per share was
$5.47, compared to $5.54 at March 31, 2013 and $5.43 at June 30,
2012. Adjusting book value to reflect the net liquidity discount on
JMP Credit CLO I’s loan portfolio and asset-backed securities
issued (which had fully amortized as of May 31, 2012) and to
accelerate the recognition of deferred compensation expense, JMP
Group’s adjusted tangible book value per share at June 30, 2013
would have been $5.21, as indicated by the table below.
(in thousands, except per share amounts) June
30, 2013 Mar. 31, 2013 June 30, 2012 Total JMP Group
stockholders' equity $121,120 $125,238 $123,449 Less: Goodwill and
intangible assets - - - Tangible stockholders'
equity 121,120 125,238 123,449 Liquidity discount on loans -
3,511 7,582 Liquidity discount on asset-backed securities issued -
(6,304 ) (33,097 ) Net liquidity discount - (2,793 ) (25,515
) Accounting adjustment – deferred compensation (9,255 ) (8,109 ) -
Pre-tax adjustments to equity (9,255 ) (10,902 ) (25,515 )
Income tax benefit (assumed rate of 38% for 2013) 3,517
4,143 10,716 After-tax adjustments to equity (5,738 )
(6,759 ) (14,799 ) Adjusted tangible stockholders' equity
$115,382 $118,479 $108,650 Adjusted
tangible book value per share $5.21 $5.24 $4.78
Basic shares outstanding 22,138 22,609 22,742
Quarterly operating ROATE (1) 11.3 % 12.3 % 11.0 % LTM operating
ROATE (1) 14.0 % 13.8 % 12.5 %
(1)
Return on adjusted tangible equity (ROATE)
equals annualized operating net income divided by average adjusted
tangible stockholders’ equity.
Share Repurchase Activity
During the quarter ended June 30, 2013, JMP Group repurchased
approximately 470,000 shares of its common stock at an aggregate
price of $3.0 million, or $6.47 per share. At quarter-end,
approximately 1.5 million 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 obligations; 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
quarter, depending upon the amount and sorts of revenue recognized
as well as other factors. The amount of compensation and benefits
expense recognized in a particular quarter may not be indicative of
such expense in any future period. As a result, the company
suggests that its 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, 2012, as filed with the Securities and Exchange Commission on
March 8, 2013, 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, 2012 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 24, 2013. To
participate in the call, dial (888) 566-6060. The conference
identification number is 21174056.
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, 2013 Dec. 31, 2012
Assets Cash and cash equivalents $53,330 $67,075 Restricted
cash and deposits 167,019 69,813 Marketable securities owned, at
fair value 17,715 14,347 Other investments 156,557 81,161 Loans
held for sale 6,779 3,134
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
633,353 401,003 Small business loans - 38,934 Deferred tax assets
9,472 13,087 Other assets 37,004 21,308 Total assets $1,081,229
$709,862 Liabilities and Stockholders' Equity
Liabilities: Marketable securities sold, but not yet purchased, at
fair value $11,876 $11,567 Accrued compensation 25,778 20,256
Asset-backed securities issued 742,709 415,456 Line of credit -
28,227 Note payable 19,368 10,486 Bond payable 46,000 - Deferred
tax liability 3,706 9,775 Other liabilities 25,076 26,791 Total
liabilities 874,513 522,558 Redeemable non-controlling
interest - 161 Stockholders' Equity: Total JMP Group Inc.
stockholders' equity 121,120 126,871 Non-redeemable non-controlling
interest 85,596 60,272 Total equity 206,716 187,143 Total
liabilities and stockholders' equity $1,081,229 $709,862
JMP GROUP INC.
Consolidated Statements of
Operations
(Unaudited)
Quarter Ended Six Months Ended (in
thousands, except per share amounts) June 30, 2013 June 30, 2012
June 30, 2013 June 30, 2012 Revenues: Investment banking
$21,057 $9,133 $33,164 $25,792 Brokerage 6,980 5,412 12,174 10,904
Asset management fees 3,527 3,492 10,278 6,966 Principal
transactions 2,292 7,780 4,209 14,264 Gain on sale, payoff and
mark-to-market of loans 336 1,405 1,425 2,452 Net dividend
(expense) 55 (9 ) 47 (23 ) Other income 26 2,407 314
3,142 Non-interest revenues 34,273 29,620
61,611 63,497 Interest income 7,711
8,260 15,869 15,718 Interest expense (10,105 ) (9,878 ) (21,404 )
(19,486 ) Net interest (expense) (2,394 ) (1,618 ) (5,535 ) (3,768
) Provision for loan losses (975 ) (1,107 ) (1,924 ) (1,200
) Total net revenues 30,904 26,895 54,152
58,529 Non-interest expenses: Compensation and
benefits 24,776 16,704 44,381 38,475 Administration 4,005 1,709
5,336 2,959 Brokerage, clearing and exchange fees 1,025 858 1,912
1,754 Travel and business development 1,039 987 1,997 1,689
Communications and technology 832 825 1,685 1,733 Occupancy 808 721
1,612 1,538 Professional fees 812 718 1,836 1,357 Depreciation 238
217 464 415 Other 224 (51 ) 307 215 Total
non-interest expense 33,759 22,688 59,530
50,135 (Loss)/income before income tax expense (2,855
) 4,207 (5,378 ) 8,394 Income tax (benefit)/expense (644 ) (920 )
(1,456 ) (539 ) Net (loss)/income (2,211 ) 5,127 (3,922 ) 8,933
Less: Net income attributable to noncontrolling interest (776 )
6,765 (768 ) 10,197 Net (loss)/income attributable to
JMP Group Inc. ($1,435 ) ($1,638 ) ($3,154 ) ($1,264 )
Net (loss)/income attributable to JMP
Group Inc. per share:
Basic ($0.06 ) ($0.07 ) ($0.14 ) ($0.06 ) Diluted ($0.06 ) ($0.07 )
($0.14 ) ($0.06 ) Weighted average common shares
outstanding: Basic 22,199 22,772 22,402 22,476 Diluted 22,199
22,772 22,402 22,476
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