JMP Group Inc. (NYSE: JMP), an investment banking and
alternative asset management firm, reported financial results today
for the quarter and full fiscal year ended December 31, 2013.
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were a record
$48.0 million for the quarter, an increase of 43.7% from $33.4
million for the fourth quarter of 2012. For the year, adjusted net
revenues were a record $154.3 million, an increase of 23.3% from
$125.2 million for 2012. For more information on adjusted net
revenues, including a reconciliation to net revenues, please see
the section below titled “Non-GAAP Financial Measures.”
- Operating net income was $3.9 million,
or $0.17 per diluted share, for the quarter, compared to $6.0
million, or $0.26 per share, for the fourth quarter of 2012. For
the year, operating net income was $13.5 million, or $0.60 per
share, compared to $16.5 million, or $0.72 per share, for 2012. For
more information on operating net income, including a
reconciliation to net income attributable to JMP Group, please see
the section below titled “Non-GAAP Financial Measures.”
- Total net revenues under generally
accepted accounting principles, or GAAP, were $59.7 million and
$149.2 million for the quarter and year ended December 31, 2013,
respectively, compared to $23.8 million and $100.9 million for the
quarter and year ended December 31, 2012, respectively.
- Net income attributable to JMP Group on
a GAAP basis was $4.0 million, or $0.17 per share, for the quarter,
compared to $5.3 million, or $0.23 per share, for the fourth
quarter of 2012. For the year, net income was $4.1 million, or
$0.18 per share, compared to $2.8 million, or $0.12 per share, for
2012.
“I am proud to report that JMP Securities had the best fourth
quarter and full year in our company’s history,” said Chairman and
Chief Executive Officer Joe Jolson. “For the quarter and year ended
in December, JMP Securities raised $6.3 billion and
$27.6 billion, respectively, for a total of 128 businesses in
four growth sectors of the U.S. economy—healthcare, technology,
financial services and real estate—compared to 87 companies in
2012. We feel good that JMP Securities continues to help U.S.
companies raise the capital needed to expand their activities and
create job opportunities in this slower-growth economy.
“JMP Group’s adjusted net revenues also set records for both the
quarter and the year, despite an expected decline in net investment
income from JMP Credit Advisors CLO I. Excluding net investment
income and corporate expenses, the earnings of the company’s
operating platforms jumped 113% year-over-year to $0.17 per share
for the fourth quarter and nearly doubled to $0.47 per share for
the full year. We ended 2013 with strong positive momentum in all
of our businesses, and I am optimistic that the favorable trend
will continue in 2014.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $28.6 million for the quarter, an increase of 53.2%
from $18.7 million for the fourth quarter of 2012, due to very
strong investment banking results. The broker-dealer segment’s
operating margins on adjusted net revenues were 15.6% and 14.5% for
the quarter and year ended December 31, 2013, respectively,
comparing favorably to 8.2% for the year ended December 31, 2012.
JMP Securities focuses its resources on small and middle-market
growth companies and their institutional investors. While JMP
Securities has benefited from improved equity capital markets
conditions, we believe that organic growth served to increase JMP
Securities’ market share to 0.91% of U.S. equity underwriting fees
in the firm’s four targeted industries, up from 0.27% in 2009.
At Harvest Capital Strategies, the asset management segment,
adjusted net revenues of $11.1 million for the quarter increased
62.4% from $6.8 million for the fourth quarter of 2012. JMP Group’s
return on its capital invested in hedge funds managed by Harvest
Capital Strategies was 2.8% for the quarter and 7.5% for the year
ended December 31, 2013.
At JMP Credit Advisors, the corporate credit management segment,
adjusted net revenues totaled $1.2 million for the quarter, an
increase of 24.3% from $1.0 million for the fourth quarter of 2012.
The gross return on invested capital at JMP Credit was 7.2% and
35.5% for the quarter and year ended December 31, 2013,
respectively, compared to 11.6% and 53.2% for the quarter and year
ended December 31, 2012, respectively. For the quarter, the
net realized gain on the sale or payoff of loans acquired by JMP
Credit in April 2009 was $0.1 million, compared to $1.7 million for
the fourth quarter of 2012, which included a loan loss provision
related to an impaired acquired loan of $1.0 million.
A summary of JMP Group’s operating net income per share by
segment for the quarter and year ended December 31, 2013 and for
comparable prior periods is set forth below.
Quarter Ended Year Ended ($ as shown) Dec. 31, 2013
Sept. 30, 2013 Dec. 31, 2012 Dec. 31, 2013
Dec. 31, 2012 Broker-dealer $0.12 $0.09 $0.02 $0.39 $0.15 Asset
management 0.04 0.02 0.05 0.05 0.06 Corporate credit management
0.01 0.01 0.01 0.03 0.03
Operating platform EPS 0.17 0.12 0.08 0.47 0.24 Investment income
0.15 0.07 0.29 0.57 0.83 Corporate costs (0.15 ) (0.07 ) (0.11 )
(0.44 ) (0.35 ) Operating EPS (diluted) $0.17 $0.12
$0.26 $0.60 $0.72
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 $21.9 million for the quarter,
an increase of 68.6% from $13.0 million for the fourth quarter of
2012. For the year, investment banking revenues were a record
$74.2 million, an increase of 45.5% from $51.0 million for
2012.
For the quarter and year ended December 31, 2013, JMP Securities
raised $6.3 billion and $27.6 billion, respectively, for a total of
128 small and middle-market businesses in four growth sectors of
the U.S. economy: healthcare, technology, financial services and
real estate. For the quarter and year ended December 31, 2012, JMP
Securities raised $3.1 billion and $16.0 billion, respectively, for
a total of 87 companies. Productivity was broadly diversified by
industry vertical and by product line, demonstrating the growing
value of the franchise.
A summary of the company’s investment banking revenues and
transaction counts for the quarter and year ended December 31, 2013
and for comparable prior periods is set forth below.
Quarter Ended Year Ended Dec. 31, 2013 Sept.
30, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012 ($
in thousands) Count Revenues Count Revenues Count
Revenues Count Revenues Count Revenues Public
equity 26 $10,503 27 $10,822 15 $3,905 123 $39,756 82 $28,955
Debt and convertible securities
9 8,730 5 3,495 5 718 32 18,781 18 3,111
Private capital markets and other
- - 2 1,534 4 5,789 4 4,490 11 10,025 Strategic advisory 3 2,639 4
3,286 3 2,560 12 11,146 12 8,891 Total 38 $21,872 38 $19,137 27
$12,972 171 $74,173 123 $50,982
Brokerage
Net brokerage revenues were $6.7 million for the quarter, an
increase of 19.1% from $5.6 million for the fourth quarter of 2012.
For the year, net brokerage revenues were $24.6 million, an
increase of 12.4% from $21.9 million for 2012, representing
the first year-over-year improvement since 2008.
Asset Management
Asset management-related fee revenues were $10.9 million, an
increase of 70.9% from $6.4 million for the fourth quarter of
2012. Harvest Small Cap Partners and Harvest Franchise Fund both
had outstanding years and accounted for most of the increase, due
to higher incentive fees earned. For 2013, asset management-related
fee revenues were $28.9 million, an increase of 32.1% from
$21.9 million for 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 December 31, 2013 totaled $1.7
billion, including $912.3 million of funds managed by Harvest
Capital Strategies and HCAP Advisors and $782.0 million par value
of loans and cash underlying the two collateralized loan
obligations managed by JMP Credit Advisors. Client assets under
management were $1.6 billion at September 30, 2013 and $1.2 billion
at December 31, 2012. Including sponsored funds, client assets
under management totaled $1.9 billion at December 31, 2013,
compared to $1.8 billion at September 30, 2013 and
$1.8 billion at December 31, 2012.
At December 31, 2013, private capital, including corporate
credit, small business lending, venture capital and real
estate-related advisory services, represented 60.9% of client
assets under management, including sponsored funds.
Principal Transactions
Principal transactions generated net realized and unrealized
gains of $15.9 million and $20.7 million for the quarter and year
ended December 31, 2013, respectively, compared to a net realized
and unrealized loss of $1.8 million and a net realized and
unrealized gain of $10.5 million for the quarter and year ended
December 31, 2012, respectively.
A summary of the company’s principal transaction revenues for
the quarter and year ended December 31, 2013 and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2013
Sept. 30, 2013 Dec. 31, 2012 Dec. 31, 2013
Dec. 31, 2012 Hedge fund investments $2,317 $432 $821
$5,555 $4,897 Principal investments: Investment in
Harvest Capital Credit - 205 - 69 - Other principal investments 140
(139 ) 17 140 637 Total principal investments 140 66
17 209 637 Venture investments: Investment in Harvest
Growth Capital funds 500 (33 ) (192 ) 534 202 Other venture
investments and warrants 657 794 1,140 2,488 1,501
Total venture investments 1,157 761 948 3,022 1,703
Principal transaction revenues net of
non-controlling interests in Harvest Growth Capital funds
3,614 1,259 1,786 8,786 7,237
Non-controlling interests in Harvest
Growth Capital funds
12,264 (619 ) (3,558 ) 11,941 3,300 Total principal
transaction revenues $15,878 $640 ($1,772 ) $20,727 $10,537
Included in the net gain of $15.9 million for the quarter ended
December 31, 2013 was a gain of $12.3 million attributable to
non-controlling interests in net realized and unrealized gains 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 4.7% of Harvest Growth Capital and 2.4% 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 $12.3 million is not included in adjusted
net revenues. Net of its non-controlling interests, JMP Group had a
net realized and unrealized gain of $0.5 million 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.”
Collateralized Loan Obligations
The net return on invested capital at JMP Credit was 7.2% and
35.5% for the quarter and year ended December 31, 2013,
respectively, compared to 11.6% and 53.2% for the quarter and year
ended December 31, 2012, respectively. During 2013, the
outsized profits from the loan portfolio acquired with JMP Credit
Advisors CLO I in April 2009 began to normalize. In May 2013, CLO
I’s contractual reinvestment period ended, and the CLO began to
delever as many corporate borrowers took advantage of opportunities
to refinance, resulting in a material number of unscheduled
prepayments and thus reducing JMP Credit’s weighted average net
interest margin. JMP Credit Advisors CLO II closed in April 2013,
but the capital was slow to be fully deployed due to high levels of
competitive activity in the marketplace for syndicated
middle-market corporate loans.
At December 31, 2013, discounts and reserves (including
liquidity discounts, allowances for loan losses and deferred loan
fees) equaled $8.6 million, or 1.2% of gross performing loans
outstanding at JMP Credit. There were no impaired loans with
associated discounts or reserves at December 31, 2013; while, at
December 31, 2012, discounts and reserves (including credit
discounts, liquidity discounts, and allowances for loan losses)
with regard to impaired loans equaled $1.7 million, or 0.4% of
gross loans outstanding.
A net loan loss provision of $0.2 million for the quarter ended
December 31, 2013 was recorded at JMP Credit, which is consolidated
under GAAP, primarily representing a general reserve in connection
with the loan portfolio underlying JMP Credit Advisors CLO II. At
December 31, 2013, general loan loss reserves equaled 0.5% of gross
performing loans at JMP Credit, in line with 0.5% at December 31,
2012.
Other Income
Other income was $0.2 million and $0.8 million for the quarter
and year ended December 31, 2013, respectively, compared to $0.3
million and $3.8 million for the quarter and year ended December
31, 2012, respectively. The year-over-year comparison is uneven in
part because, in the second quarter of 2012, New York Mortgage
Trust, Inc. paid a one-time fee of $1.7 million upon the
termination of its advisory agreement with Harvest Capital
Strategies.
Net Interest Income
Net interest income was $4.5 million for the quarter, compared
to net interest expense of $1.6 million for the fourth quarter of
2012, when interest expense due to net amortization of liquidity
discounts at JMP Credit Corporation equaled $7.6 million. Excluding
the amortization-related expense for the period, net interest
income would have been $6.0 million for the fourth quarter of 2012.
Further excluding net interest income of $1.0 million attributable
to Harvest Capital Credit, which, due to its IPO, is no longer
consolidated by JMP Group, net interest income would have been $5.0
million for the fourth quarter of 2012. For the year, net interest
income was $3.2 million, compared to net interest expense of $7.1
million for 2012; excluding interest expense due to net
amortization of liquidity discounts, net interest income would have
been $18.2 million and $22.1 million, respectively, for those
periods. Further excluding net interest income of $1.8 million and
$2.8 million attributable to Harvest Capital Credit for 2013 and
2012, respectively, net interest income would have been $16.4
million and $19.3 million, respectively, for those years.
Expenses
Compensation and Benefits
Compensation and benefits expense was $33.4 million for the
quarter, compared to $10.6 million for the fourth quarter of 2012.
For the year, compensation and benefits expense was $102.4 million,
compared to $66.4 million for 2012. Excluding the cost of
stock-based awards but accelerating and recognizing the cost of net
deferred compensation related to the current period, compensation
and benefits expense was 71.8% of adjusted net revenues for the
quarter, compared to 48.2% for the fourth quarter of 2012, and was
67.6% for the year, compared to 57.0% for 2012. Further excluding
compensation expense related to strategic initiatives, the
compensation ratio was 64.9% for the year, compared to 56.2% for
2012. For more information on compensation ratios, please see the
section below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $7.3 million for the quarter,
compared to $7.0 million for the fourth quarter of 2012. For the
year, non-compensation expense was $29.2 million, compared to
$25.0 million for 2012. The year-over-year increase is in part
due to one-time expenses totaling $2.5 million incurred by JMP
Group in connection with Harvest Capital Credit’s initial public
offering in May 2013.
Personnel
At December 31, 2013, the company had 235 full-time employees,
up from 231 at September 30, 2013 and 224 at December 31, 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
non-GAAP 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 (prior to its
IPO on May 2, 2013), (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 was 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, for periods prior to
that ended September 30, 2013;
- the non-specific, non-cash loan loss
provision recorded with regard to loans acquired during the period
by 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 year ended December 31, 2013 and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2013
Sept. 30, 2013 Dec. 31, 2012 Dec. 31, 2013
Dec. 31, 2012 Revenues: Non-interest revenues $55,474
$31,531 $26,409 $148,616 $110,222 Net interest income/(expense)
4,458 4,313 (1,573 ) 3,236 (7,095 ) General loan loss provision
(246 ) (467 ) (1,071 ) (2,637 ) (2,206 ) Total net revenues 59,686
35,377 23,765 149,215 100,921
Asset management fees earned on Harvest
Growth Capital funds and Harvest Capital Credit (1) (2)
386 386 1,060 2,151 2,342 Dividend distribution from Harvest
Capital Credit (2) - - - 678 234
Less: Net interest income and other
revenues from Harvest Capital Credit (2)
- - (1,202 ) (2,116 ) (2,789 )
Total net revenues including fee revenues
from consolidated entities
60,072 35,763 23,623 149,928 100,708
Add back/(subtract):
Net amortization of liquidity discounts on
loans and asset-backed securities issued
- - 7,577 14,979 29,208
Loan loss provision – JMP Credit Advisors
II
200 377
-
1,705
-
Unrealized mark-to-market (gain) – Harvest
Capital Credit
- - (1,608 ) (515 ) (1,981 )
Realization of mark-to-market gain –
Harvest Capital Credit
- - - 772 -
Net unrealized loss/(gain) on strategic
equity investments and warrants
21 (531 ) 294 (596 ) 527
Non-controlling interests in net
unrealized (gains)/losses on Harvest Growth Capital funds
(12,248 ) 619 3,559 (11,924 ) (3,300 ) Adjusted net
revenues $48,045 $36,228 $33,445 $154,349
$125,162 (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.
(2) Subsequent to its IPO on May 2, 2013, Harvest Capital
Credit is no longer consolidated; therefore, fees and dividends
related to Harvest Capital Credit are included in non-interest
revenues following that date.
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 year ended December 31, 2013 and for comparable
prior periods is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2013
Sept. 30, 2013 Dec. 31, 2012 Dec. 31, 2013
Dec. 31, 2012 Base management fees: Fees reported as asset
management fees $2,612 $2,585 $2,339 $10,114 $9,433 Fees reported
as other income 191 - 263 695 1,916
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
697 636 435 2,437 1,154 Total base management fees 3,500 3,221
3,037 13,246 12,503 Incentive fees: Fees reported as asset
management fees 7,423 2,493 2,715 15,139 6,342
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
- - 624 417 1,188 Total incentive fees 7,423 2,493 3,339 15,556
7,530 Other fee income: Fundraising and other fees 26 267 30
103 109 New York Mortgage Trust termination fee - - - - 1,735 Total
other fee income 26 267 30 103 1,844 Asset
management-related fee revenues: Fees reported as asset management
fees 10,035 5,078 5,054 25,253 15,775 Fees reported as other income
217 267 293 798 3,760
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
697 636 1,059 2,854 2,342
Total asset management-related fee
revenues
$10,949 $5,981 $6,406 $28,905 $21,877
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.
Compensation Ratio
A compensation ratio expresses GAAP compensation expense as a
percentage of GAAP net revenues in a given period. Adjusted
compensation ratios are non-GAAP financial measures that utilize
adjusted net revenues as the denominator in their calculation.
Furthermore, these ratios adjust the financial impact of certain
compensation-related and transaction-related expenses that are or
are not recognized under GAAP. In particular, the adjusted
compensation ratio reverses compensation expense related to
stock-based awards and deferred compensation (so that the
compensation expenses used in the numerator are those that
correspond to the adjusted net revenues generated in the periods
presented) as well as a one-time administrative cost incurred by
JMP Group in connection with the initial public offering of Harvest
Capital Credit Corporation in May 2013. The adjusted compensation
ratio is further adjusted by excluding compensation paid to
employees hired in connection with the company’s strategic
investments in new business initiatives.
A statement of JMP Group’s compensation ratios for the quarter
and year ended December 31, 2013 and for comparable prior periods
is set forth below.
Quarter Ended
Year Ended ($ in thousands) Dec. 31, 2013 Sept. 30,
2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012
Adjusted net revenues $48,045 $36,228 $33,445
$154,349 $125,162 Compensation and benefits
$33,366 $24,685 $10,582 $102,432 $66,415 Subtract/(add
back): Compensation expense – stock option grants 262 262 - 920 -
Compensation expense – post-IPO RSU grants 804 699 1,910 2,823
2,492
Compensation expense – net deferred
compensation
(2,623 ) (1,277 ) (6,985 ) (6,170 ) (6,985 )
IPO-related administrative expense –
Harvest Capital Credit Corporation
450 - (450 ) 450 (450 ) Adjusted compensation
and benefits 34,473 25,001 16,107 104,409
71,358 Subtract:
Compensation expense – strategic
initiatives
895 648 250 4,313 1,000
Adjusted non-compensation expense,
excluding strategic initiatives
$33,578 $24,353 $15,857 $100,096
$70,358
Adjusted ratio of compensation expense to
revenues
71.8 % 69.0 % 48.2 % 67.6 % 57.0 %
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives
69.9 % 67.2 % 47.4 % 64.9 % 56.2 %
Company management has utilized compensation ratios, adjusted in
the manners described above, to assess JMP Group’s personnel
expenses as they relate to its revenues for the periods presented.
Management believes that adjusted compensation ratios provide
useful information by including or excluding certain expenses as a
means of representing the company’s ongoing personnel costs
resulting from its core business activities. Management also
believes that compensation ratios are useful measures because they
allow and facilitate meaningful comparisons of the company’s
personnel expense levels in a given period to those in prior and
future periods.
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;
- net deferred compensation, which
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 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, for periods prior to
that ended September 30, 2013;
- 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 year ended December 31, 2013 and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands, except per
share amounts) Dec. 31, 2013 Sept. 30, 2013 Dec. 31,
2012 Dec. 31, 2013 Dec. 31, 2012 Net income
attributable to JMP Group Inc. $3,971 $3,289 $5,327 $4,106 $2,756
Add back: Income tax expense 3,294 1,634 3,004
3,472 1,581 Income before taxes 7,265 4,923
8,331 7,578 4,337 Add back/(subtract): Compensation expense
– stock options 262 262 - 920 - Compensation expense – post-IPO
RSUs 804 699 1,910 2,823 2,492
Compensation expense – deferred
compensation
(2,623 ) (1,277 ) (6,985 ) (6,170 ) (6,985 )
Net amortization of liquidity discounts –
JMP Credit Advisors CLO I
- - 7,577 14,979 29,208
Loan loss provision – JMP Credit Advisors
CLO II
146 274 - 1,241 -
IPO-related expense – Harvest Capital
Credit
450 - (450 ) 450 (450 )
Unrealized mark-to-market (gain)/loss –
Harvest Capital Credit
- - (380 ) (162 ) (626 )
Realization of mark-to-market gain –
Harvest Capital Credit
- - - 772 -
Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants
21 (531 ) 294 (596 ) 527 Operating income
before taxes 6,325 4,350 10,297 21,835 28,503 Income tax
expense assumed 2,403 1,653 4,325 8,296
11,971 Operating net income $3,922 $2,697
$5,972 $13,539 $16,532 Operating net
income per share: Basic $0.18 $0.12 $0.26 $0.61 $0.73 Diluted $0.17
$0.12 $0.26 $0.60 $0.72 Weighted average shares outstanding:
Basic 21,825 22,014 22,637 22,158 22,582 Diluted 22,701 22,713
22,722 22,650 22,906
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 December 31, 2013 is set forth
below.
Quarter Ended December 31, 2013
Corp. Invest-
HGC
HCC(1)
Consoli- Broker- Asset Credit Operating ment Corp.
Elimin- JMP Consoli- Consoli- dated JMP (in thousands, except per
share amounts) Dealer Mgmt. Mgmt. Platforms Income Costs ations
Group dation dation Group Revenues: Investment banking
$21,872 - - $21,872 - - - $21,872 - - $21,872 Brokerage 6,701 - -
6,701 - - - 6,701 - - 6,701 Asset management-related fees (2) -
$11,069 $1,224 12,293 - - ($1,344) 10,949 ($387) - 10,562 Principal
transactions (3) - - - - $3,641 - (6) 3,635 12,264 - 15,899 Gain on
sale and payoff of loans - - - - 215 - - 215 - - 215 Net dividend
income - - - - 245 - - 245 - - 245 Net interest income/(expense) -
- - - 4,474 - - 4,474 (16) - 4,458 Provision for loan losses - - -
- (46) - - (46) - - (46) Adjusted net revenues 28,573 11,069 1,224
40,866 8,529 - (1,350) 48,045 11,861 - 59,906 Expenses:
Non-interest expense/(income) (4) 24,103 9,750 1,000 34,853 2,850
5,324 (1,350) 41,677 93 - 41,770 Less: Non-controlling
interest (5) - (265) - (265) 307 - - 42 11,768 - 11,810
Operating income/(loss) before taxes
4,470 1,584 224 6,278 5,372 (5,324) - 6,326 - - 6,326
Income tax expense/(benefit) (assumed rate
of 38%)
1,699
602
85 2,386 2,041 (2,023) - 2,404 - - 2,404 Operating net
income/(loss) $2,771 $982 $139 $3,892 $3,331 ($3,301) - $3,922 - -
$3,922
Operating net income/(loss) per share:
Basic $0.13 $0.04 $0.01 $0.18 $0.15 ($0.15) - $0.18 - - $0.18
Diluted $0.12 $0.04 $0.01 $0.17 $0.15 ($0.15) - $0.17 - - $0.17 (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 of $0.4 million are eliminated upon consolidation of two
Harvest Growth Capital funds. (3) Reverses net unrealized
gains and losses on strategic equity investments and warrants.
Excludes non-controlling interests in net realized and unrealized
gains totaling $12.3 million that are recognized upon consolidation
of two Harvest Growth Capital funds. (4) Reverses
stock-based compensation expense as well as accounting adjustments
related to deferred compensation expense and excludes fund-related
expenses totaling $93,000 that are recognized upon consolidation of
two Harvest Growth Capital funds. (5) Excludes
non-controlling interests totaling $11.8 million in the net
realized and unrealized gains of two Harvest Growth Capital funds
that are recognized upon consolidation of the entities.
A statement of JMP Group’s operating net income on a segment
basis for the year ended December 31, 2013 is set forth below.
Year Ended December 31, 2013 Corp.
Invest-
HGC HCC (1) Consoli- Broker- Asset Credit
Operating ment Corp. Elimin- JMP Consoli- Consoli- dated JMP (in
thousands, except per share amounts) Dealer Mgmt. Mgmt. Platforms
Income Costs ations Group dation dation Group
Revenues: Investment banking $74,508 - - $74,508 - - ($335 )
$74,173 - - $74,173 Brokerage 24,625 - - 24,625 - - - 24,625 - -
24,625 Asset management-related fees (2) - $29,598 $4,735 34,333 -
- (5,429 ) 28,904 ($1,570 ) ($584 ) 26,750 Principal transactions
(3) - - - - $8,180 - - 8,180 11,941 356 20,477 Gain on sale and
payoff of loans (4) - - - - 1,716 - - 1,716 - - 1,716 Net dividend
income - - - - 1,213 - - 1,213 - (678 ) 535 Net interest
income/(expense) (5) - - - - 16,470 - - 16,470 (15 ) 1,760 18,215
Provision for loan losses - - - - (932 ) - -
(932 ) - - (932 ) Adjusted net revenues 99,133
29,598 4,735 133,466 26,647 - (5,764 ) 154,349 10,356 854 165,559
Expenses: Non-interest expense/(income) (6)(8) 84,785 29,628
3,691 118,104 4,864 16,039 (5,744 ) 133,263 234 144 133,641
Less: Non-controlling interest (7)(8) - (1,731 ) - (1,731 ) 981
- - (750 ) 10,122 710 10,082
Operating income/(loss) before taxes
14,348 1,701 1,044 17,093 20,802 (16,039 ) (20 ) 21,836 - - 21,836
Income tax expense/(benefit) (assumed rate
of 38%)
5,452 646 397 6,495 7,905 (6,095 ) (8 ) 8,297
- - 8,297 Operating net income/(loss)
$8,896 $1,055 $647 $10,598 $12,897 ($9,944 )
($12 ) $13,539 - - $13,539
Operating net income/(loss) per share:
Basic $0.40 $0.05 $0.03 $0.48 $0.58 ($0.45 ) ($0.00 ) $0.61 - -
$0.61 Diluted $0.39 $0.05 $0.03 $0.47 $0.57 ($0.44 ) ($0.00 ) $0.60
- - $0.60 (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 $2.2 million are eliminated upon
consolidation of two Harvest Growth Capital funds and Harvest
Capital Credit (until its IPO on May 2, 2013). (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 gains totaling $12.3 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 $0.4 million that are recognized upon consolidation of two
Harvest Growth Capital funds and Harvest Capital Credit (until its
IPO on May 2, 2013). (7) Excludes non-controlling interests
totaling $10.8 million in the net realized and unrealized losses of
two Harvest Growth Capital funds and Harvest Capital Credit (until
its IPO on May 2, 2013) that are recognized upon consolidation.
(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 December 31, 2013, JMP Group’s tangible book value per share
was $5.81. Adjusting book value by accelerating the recognition of
deferred compensation expense, JMP Group’s adjusted tangible book
value per share at December 31, 2013 would have been $5.44.
(in thousands, except per share amounts) Dec. 31, 2013
Sept. 30, 2013 Dec. 31, 2012 Total JMP Group
stockholders' equity $126,863 $123,740 $126,871 Less: Goodwill and
intangible assets - - - Tangible stockholders'
equity 126,863 123,740 126,871
Liquidity discount on loans - - 4,331 Liquidity discount on
asset-backed securities issued - - (15,548 ) Net
liquidity discount - - (11,217 ) Compensation expense – deferred
compensation (13,156 ) (10,533 ) (6,985 ) Pre-tax adjustments to
equity (13,156 ) (10,533 ) (18,202 ) Income tax benefit (assumed
rate of 38% for 2013) 4,999 4,003 7,645
After-tax adjustments to equity (8,157 ) (6,530 ) (10,557 )
Adjusted tangible stockholders' equity $118,706 $117,210
$116,314 Tangible book value per share $5.81
$5.63 $5.62 Adjusted tangible book value per
share $5.44 $5.34 $5.15 Basic shares
outstanding 21,819 21,961 22,592 Quarterly operating ROATE
(1) 13.3 % 9.3 % 21.0 % LTM operating ROATE (1) 11.6 % 13.5 % 15.0
% (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 December 31, 2013, JMP Group
repurchased 219,443 shares of its common stock at an aggregate
price of $1.4 million, or $6.57 per share. During the year ended
December 31, 2013, JMP Group repurchased 890,376 shares of its
common stock at an aggregate price of $5.8 million, or $6.50 per
share. At year-end, approximately 1.1 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. EST on Friday, February 14, 2014. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
59540343.
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) Dec. 31, 2013 Dec. 31, 2012
Assets Cash and cash equivalents $65,906 $67,075
Restricted cash and deposits 68,029 69,813 Marketable securities
owned, at fair value 29,295 14,347 Other investments 161,773 81,161
Loans held for sale - 3,134
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
727,270 401,003 Small business loans - 38,934 Deferred tax assets
12,506 13,087 Other assets 57,166 21,308 Total assets $1,121,945
$709,862 Liabilities and Stockholders' Equity
Liabilities: Marketable securities sold, but not yet purchased, at
fair value $13,749 $11,567 Accrued compensation 51,347 20,256
Asset-backed securities issued 716,423 415,456 Line of credit 2,895
28,227 Note payable 15,000 10,486 Bond payable 46,000 - Deferred
tax liability 3,625 9,775 Other liabilities 35,188 26,791
Total liabilities
884,227 $522,558 Redeemable non-controlling interest - 161
Stockholders' Equity: Total JMP Group Inc. stockholders'
equity 126,863 126,871 Non-redeemable non-controlling interest
110,855 60,272 Total equity 237,718 187,143 Total liabilities and
stockholders' equity $1,121,945 $709,862
JMP GROUP
INC. Consolidated Statements of Operations
(Unaudited)
Quarter Ended Year Ended (in thousands, except
per share amounts) Dec. 31, 2013 Dec. 31, 2012 Dec. 31, 2013
Dec. 31, 2012 Revenues: Investment banking $21,872
$12,972 $74,173 $50,982 Brokerage 6,701 5,628 24,625 21,903 Asset
management fees 10,346 5,054 25,952 15,775 Principal transactions
15,878 (1,772 ) 20,727 10,537 Gain on sale, payoff and
mark-to-market of loans 215 4,238 1,806 7,255 Net dividend
income/(expense) 245 (4 ) 535 (29 ) Other income 217 293
798 3,800 Non-interest revenues 55,474
26,409 148,616 110,223 Interest income
8,743 8,847 33,346 32,898 Interest expense (4,285 ) (10,420 )
(30,110 ) (39,993 ) Net interest income/(expense) 4,458
(1,573 ) 3,236 (7,095 ) Provision for loan losses
(246 ) (1,071 ) (2,637 ) (2,206 ) Total net revenues 59,686
23,765 149,215 100,922 Non-interest
expenses: Compensation and benefits 33,366 10,582 102,432 66,415
Administration 1,405 1,582 8,660 6,186 Brokerage, clearing and
exchange fees 692 1,150 3,543 3,806 Travel and business development
1,425 952 4,416 3,387 Communications and technology 942 861 3,534
3,503 Occupancy 811 805 3,245 3,157 Professional fees 1,485 1,306
3,953 3,630 Depreciation 226 242 921 884 Other 311 138
960 420 Total non-interest expense 40,663
17,618 131,664 91,388 Income
before income tax expense 19,023 6,147 17,551 9,534 Income tax
expense 3,294 3,004 3,472 1,581 Net
income 15,729 3,143 14,079 7,953 Less: Net income/(loss)
attributable to noncontrolling interests 11,758 (2,184 )
9,973 5,196 Net income attributable to JMP Group Inc.
$3,971 $5,327 $4,106 $2,757 Net
income attributable to JMP Group Inc. per share: Basic $0.18 $0.24
$0.19 $0.12 Diluted $0.17 $0.23 $0.18 $0.12 Weighted average
common shares outstanding: Basic 21,825 22,637 22,158 22,582
Diluted 22,701 22,722 22,650 22,906
Investor Relations ContactJMP Group Inc.Andrew Palmer,
415-835-8978apalmer@jmpg.comorMedia Relations ContactDukas
Public RelationsSeth Linden, 212-704-7385seth@dukaspr.comZach
Leibowitz, 212-704-7385zach@dukaspr.com
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