JMP Group Inc. (NYSE: JMP), an investment banking and
alternative asset management firm, reported financial results today
for the quarter and nine months ended September 30, 2014.
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were $40.3
million, an increase of 11.3% from $36.2 million for the third
quarter of 2013. For the nine months ended September 30, 2014,
adjusted net revenues were a record $134.9 million, an increase of
27.0% from $106.2 million for the nine months ended September 30,
2013. 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 $3.4 million,
or $0.15 per diluted share, an increase of 27.7% from
$2.7 million, or $0.12 per share, for the third quarter of
2013. For the nine months ended September 30, 2014, operating
net income was $11.9 million, or $0.52 per share, an increase of
23.3% from $9.6 million, or $0.43 per share, for the nine
months ended September 30, 2013. 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.”
- On July 29, 2014, the company announced
that it was evaluating a potential transaction whereby JMP Group
would convert its corporate form into a limited liability company
that would be taxed as a partnership, and no longer as a
corporation, for U.S. federal income tax purposes. On August 20,
2014, the company announced that its board of directors approved
the restructuring transaction. The potential restructuring will be
subject to a shareholder vote before year-end. For the quarter,
legal and other expenses in connection with the transaction were
$0.4 million, or $0.01 per share after tax, which was included
in operating EPS of $0.15. For the nine months ended September 30,
2014, such costs were $0.06 million, or $0.01 per share after
tax, which was included in operating EPS of $0.52. For more
information on the potential transaction, including pro forma
financial information, please see the most recent amendment to the
Form S-4 filed by JMP Group LLC with the Securities and Exchange
Commission.
- Total net revenues under generally
accepted accounting principles, or GAAP, were $33.7 million and
$128.9 million for the quarter and nine months ended September 30,
2014, respectively, compared to $35.4 million and $89.5 million for
the quarter and nine months ended September 30, 2013,
respectively.
- Net income attributable to JMP Group on
a GAAP basis was $1.5 million, or $0.06 per share, compared to $3.3
million, or $0.14 per share, for the third quarter of 2013. For the
nine months ended September 30, 2014, GAAP net income was $8.7
million, or $0.37 per share, compared to $0.1 million, or $0.01 per
share, for the nine months ended September 30, 2013.
“JMP Group posted another good quarter, thanks to our
diversified business model, with operating earnings increasing 28%
year-over-year to $0.15 per share, despite a slower pace in the
equity capital markets environment,” said Chairman and Chief
Executive Officer Joe Jolson. “Excluding net investment income and
corporate costs, our three operating platforms earned a record
$0.66 per share for the latest twelve months, an increase of 74%
from $0.38 per share for the prior twelve-month period. The strong
results drove a 12% increase in our tangible book value per share
to $6.32 and also allowed us to return 48% of our operating
earnings to stockholders through cash dividends and share buybacks
over the past year.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $23.5 million, a decrease of 5.5% from $24.9 million
for the third quarter of 2013. The broker-dealer segment’s
operating margin on adjusted net revenues was 14.5%, compared to
16.8% for the prior quarter and 13.8% for the third quarter of
2013.
At Harvest Capital Strategies, the asset management segment,
adjusted net revenues of $11.2 million increased 82.3% from $6.2
million for the third quarter of 2013. JMP Group’s return on its
capital invested in hedge funds managed by Harvest Capital
Strategies was 1.8% for the period.
At JMP Credit Advisors, the corporate credit management segment,
adjusted net revenues totaled $1.2 million, a decrease of 8.6%
from $1.4 million for the third quarter of 2013. For the third
quarter of 2014, there was no net realized gain or loss on the sale
or payoff of loans underlying collateralized loan obligations;
while, for the third quarter of 2013, there was a net realized gain
of $0.2 million.
A summary of JMP Group’s operating net income per share by
segment for the quarter and nine months ended September 30, 2014,
and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended ($ as shown) Sept.
30, 2014 June 30, 2014 Sept. 30, 2013 Sept. 30, 2014
Sept. 30, 2013 Broker-dealer $0.09 $0.13 $0.10 $0.40
$0.27 Asset management 0.04 0.02 0.01 0.06 0.01 Corporate credit
management 0.00 0.02 0.01 0.02 0.02
Operating platform EPS 0.13 0.17 0.12 0.48 0.30 Investment
income 0.11 0.12 0.07 0.35 0.42 Corporate costs (0.09 ) (0.11 )
(0.07 ) (0.31 ) (0.29 ) Operating EPS (diluted) $0.15
$0.18 $0.12 $0.52 $0.43
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 $17.1 million, a decrease of
10.8% from $19.1 million for the third quarter of 2013. For the
nine months ended September 30, 2014, investment banking revenues
were $65.2 million, an increase of 24.6% from $52.3 million
for the nine months ended September 30, 2013.
A summary of the company’s investment banking revenues and
transaction counts for the quarter and nine months ended September
30, 2014, and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended Sept. 30, 2014
June 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30,
2013 ($ in thousands) Count Revenues Count Revenues
Count Revenues Count Revenues Count Revenues
Public equity 26 $9,834 34 $14,717 27 $10,822 93 $44,072 97
$29,253
Debt and convertible securities
4 470 5 1,090 5 3,495 15 3,131 23 10,033
Private capital markets and other
1 125 - 325 2 1,534 2 1,148 4 4,509 Strategic advisory 4 6,634 8
6,929 4 3,286 15 16,826 9 8,506 Total 35 $17,063 47 $23,061
38 $19,137 125 $65,177 133 $52,301
Brokerage
Net brokerage revenues were $6.5 million, an increase of 12.3%
from $5.8 million for the third quarter of 2013. For the nine
months ended September 30, 2014, net brokerage revenues were $19.6
million, an increase of 9.3% from $17.9 million for the nine months
ended September 30, 2013.
Asset Management
Asset management-related fee revenues were $11.1 million, an
increase of 85.6% from $6.0 million for the third quarter of 2013,
largely due to an increase in incentive fees to $6.2 million from
$2.5 million. For the nine months ended September 30, 2014, asset
management-related fee revenues were $32.6 million, an
increase of 81.7% from $18.0 million for the nine months ended
September 30, 2013. For more information on asset
management-related fee revenues, please see the section below
titled “Non-GAAP Financial Measures.”
Client assets under management at September 30, 2014, totaled
$2.2 billion, including $1.1 billion of funds managed by Harvest
Capital Strategies and HCAP Advisors and $1.1 billion par value of
loans and cash managed by JMP Credit Advisors. Client assets under
management were $1.9 billion at June 30, 2014, and $1.6 billion at
September 30, 2013. Including sponsored funds in which Harvest
Capital Strategies owns an economic interest, client assets under
management totaled $2.5 billion at September 30, 2014.
At September 30, 2014, private capital, including corporate
credit, small business lending, venture capital and real
estate-related advisory services, represented 63.1% of client
assets under management, including sponsored funds.
Principal Transactions
Principal transactions generated net realized and unrealized
losses of $4.3 million and net realized and unrealized gains of
$1.7 million for the quarter and nine months ended September 30,
2014, respectively, compared to net realized and unrealized gains
of $0.6 million and $4.8 million for the quarter and nine months
ended September 30, 2013, respectively.
A summary of the company’s principal transaction revenues for
the quarter and nine months ended September 30, 2014, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2014 June 30, 2014 Sept. 30, 2013 Sept. 30, 2014
Sept. 30, 2013 Hedge fund investments $1,784
$2,255 $432 $5,747 $3,238
Principal investments:
Investment in Harvest Capital Credit
Corporation
(1,273 ) 19 205 (1,417 ) 69 Other principal investments 26
(108 ) (139 ) (28 ) - Total principal investments (1,247 )
(89 ) 66 (1,445 ) 69 Venture investments:
Investment in Harvest Growth Capital
funds
(164 ) 284 (33 ) (183 ) 34 Other venture investments and warrants
(298 ) 255 794 246 1,831 Total venture
investments (462 ) 539 761 63 1,865
Principal transaction revenues net of
non-controlling interests in Harvest Growth Capital funds
75 2,705 1,259 4,365 5,172
Non-controlling interests in Harvest
Growth Capital funds
(4,351 ) 6,983 (619 ) (2,646 ) (323 ) Total principal
transaction revenues ($4,276 ) $9,688 $640 $1,719
$4,849
Included in the net loss of $4.3 million for the quarter ended
September 30, 2014, was a loss of $4.4 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 4.8% of Harvest Growth Capital and 2.3% 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 loss of $4.4 million is not included in adjusted net
revenues. Net of its non-controlling interests, JMP Group had a net
realized and unrealized loss of $0.2 million on its investments in
Harvest Growth Capital and Harvest Growth Capital II for the
quarter. For more information on adjusted net revenues, including
reconciliation to net revenues, please see the section below titled
“Non-GAAP Financial Measures.”
Collateralized Loan Obligations
The net returns on invested capital managed by JMP Credit
Advisors were 3.9% and 12.4% for the quarter and nine months ended
September 30, 2014, respectively, compared to 6.9% and 26.3% for
the quarter and nine months ended September 30, 2013,
respectively.
At September 30, 2014, discounts and reserves (including
liquidity discounts, allowances for loan losses and deferred loan
fees) equaled $11.4 million, or 1.2% of gross performing loans
outstanding at JMP Credit. At September 30, 2013, such discounts
and reserves equaled $8.5 million, or 1.2% of gross performing
loans outstanding. There were no impaired loans at either September
30, 2014, or September 30, 2013.
A net loan loss provision of $1.0 million for the quarter was
recorded at JMP Credit, which is consolidated under GAAP, primarily
representing a general reserve in connection with the loan
portfolio being accumulated for JMP Credit Advisors CLO III. At
September 30, 2014, general loan loss reserves equaled 0.6% of
gross performing loans at JMP Credit.
Net Interest Income
Net interest income was $4.4 million, compared to net interest
income of $4.3 million for the third quarter of 2013.
For the nine months ended September 30, 2014, net interest
income was $11.9 million, compared to net interest expense of $1.2
million for the nine months ended September 30, 2013, when interest
expense due to net amortization of liquidity discounts at JMP
Credit equaled $14.9 million. Excluding the amortization-related
expense for the period, net interest income would have been $13.7
million for the nine months ended September 30, 2013. Further
excluding net interest income of $1.8 million attributable to
Harvest Capital Credit, which, due to its May 2013 initial public
offering, is no longer consolidated by JMP Group, net interest
income would have been $11.9 million for the nine months ended
September 30, 2013.
Expenses
Compensation and Benefits
Compensation and benefits expense was $28.3 million, compared to
$24.7 million for the third quarter of 2013. Excluding the cost of
stock-based awards but accelerating and recognizing the cost of net
deferred compensation related to the period, compensation and
benefits expense was 68.7% of adjusted net revenues, compared to
69.0% for the third quarter of 2013. Further excluding compensation
expense related to strategic initiatives and hedge fund incentive
fees, the compensation ratio was 62.8%, compared to 65.3% for the
third quarter of 2013.
For the nine months ended September 30, 2014, compensation and
benefits expense was $97.7 million, compared to $69.1 million for
the nine months ended September 30, 2013. Excluding the cost of
stock-based awards but accelerating and recognizing the cost of net
deferred compensation related to the period, compensation and
benefits expense was 70.5% of adjusted net revenues, compared to
65.7% for the nine months ended September 30, 2013. Further
excluding compensation expense related to strategic initiatives and
hedge fund incentive fees, the compensation ratio was 64.7%,
compared to 60.1% for the nine months ended September 30,
2013.
For more information on compensation ratios, please see the
section below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $7.0 million, compared to $6.8
million for the third quarter of 2013. For the nine months ended
September 30, 2014, non-compensation expense was $20.7 million,
compared to $21.9 million for the nine months ended September
30, 2013. Excluding costs related to JMP Group's conversion to a
publicly traded limited liability company, non-compensation expense
would have been $6.6 million for the quarter and $20.1 million for
the nine months ended September 30, 2014.
Personnel
At September 30, 2014, the company had 233 full-time employees,
compared to 231 at June 30, 2014, and 231 at September 30,
2013.
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 a 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 with regard to other CLOs, (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, (vi) excludes the non-controlling interest in net
unrealized gains and losses on Harvest Growth Capital and Harvest
Growth Capital II, and (vii) reverses unrealized mark-to-market
gains or losses on investments related to deferred compensation. 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 ending
on or before June 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 and JMP Credit Advisors III, which is
required by GAAP;
- unrealized mark-to-market gains or
losses on the investment portfolio at Harvest Capital Credit;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments as well as
certain warrant positions;
- 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; and
- unrealized mark-to-market gains or
losses on investments in the company’s hedge funds that are made on
behalf of employees who opt for such investments under the terms of
their deferred compensation agreements; any gains or losses will
accrue to the individual employee once the deferred compensation is
released to that individual.
A reconciliation of JMP Group’s net revenues to its adjusted net
revenues for the quarter and nine months ended September 30, 2014,
and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2014 June 30, 2014 Sept. 30, 2013 Sept. 30, 2014
Sept. 30, 2013 Revenues: Non-interest revenues
$30,294 $53,942 31,531 $118,633 $93,142 Net interest
income/(expense) 4,359 3,788 4,313 11,907 (1,222 ) Loan loss
provision (956 ) (212 ) (467 ) (1,665 ) (2,391 ) Total net revenues
33,697 57,518 35,377 128,875 89,529
Asset management fees earned on Harvest
Growth Capital funds and Harvest Capital Credit (1) (2)
281 366 387 1,025 1,766
Dividend distribution from Harvest Capital
Credit (2)
- - - - 678
Less: Net interest income and other
revenues from Harvest Capital Credit (2)
- - - - (2,116 )
Total net revenues including fee revenues
from consolidated entities
33,978 57,884 35,764 129,900 89,857
Add back/(subtract):
Net amortization of liquidity discounts on
loans and asset-backed securities issued
- - - - 14,979
General loan loss provision –
collateralized loan obligations
919 382 377 1,851 1,505
Unrealized mark-to-market (gain) – Harvest
Capital Credit
- - - - (515 )
Realization of mark-to-market gain –
Harvest Capital Credit
- - - - 772
Net unrealized loss/(gain) on strategic
equity investments and warrants
1,392
(72 ) (531 ) 1,494 (617 )
Non-controlling interests in net
unrealized losses/(gains) on Harvest Growth Capital funds
4,361 (6,980 ) 619 2,678 323
Unrealized mark-to-market (gain)/loss –
deferred compensation
(332 ) (656 ) 1 (1,058 ) (152 ) Adjusted net revenues
$40,318 $50,558 $36,230 $134,865
$106,152 (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 nine months ended September 30, 2014, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2014 June 30, 2014 Sept. 30, 2013 Sept. 30, 2014
Sept. 30, 2013 Base management fees: Fees reported as
asset management fees $2,983 $2,725 $2,585 $8,302 $7,502
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
769 804 636 2,342 1,740 Total base management fees 3,752 3,529
3,221 10,644 9,242 Incentive fees: Fees reported as asset
management fees 5,622 11,209 2,493 19,750 7,715
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
538 485 - 665 417 Total incentive fees 6,160 11,694 2,493 20,415
8,132 Other fee income: Total fundraising and other fees
1,191 152 267 1,564 581 Asset management-related fee
revenues $11,103 $15,375 $5,981 $32,623 $17,955 Summations:
Fees reported as asset management fees $8,605 $13,934 $5,078
$28,052 $15,217
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
1,307 1,289 636 3,007 2,157 Fees reported as other fee income 1,191
152 267 1,564 581
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 compensation expense as a
percentage of net revenues in a given period. As utilized by JMP
Group, an adjusted compensation ratio is a non-GAAP financial
measure that employs adjusted net revenues as the denominator in
its calculation. Furthermore, this ratio adjusts 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 and
unrealized mark-to-market gains or losses related to stock-based
awards and deferred compensation (so that the compensation expenses
used in the numerator correspond to the adjusted net revenues
generated in the periods presented). The adjusted compensation
ratio is further adjusted by excluding compensation paid to
employees hired in connection with JMP Group’s strategic
investments in new business initiatives. In addition, the company
presents an adjusted compensation ratio that excludes any
compensation related to incentive fees generated by hedge funds, a
majority of which is passed through to the funds’ investment teams
if earned.
A statement of JMP Group’s compensation ratio for the quarter
and nine months ended September 30, 2014, and for comparable prior
periods is set forth below.
Quarter Ended Nine Months Ended ($ in thousands)
Sept. 30, 2014 June 30, 2014 Sept. 30, 2013 Sept. 30,
2014 Sept. 30, 2013 Compensation Ratios Adjusted net
revenues $40,318 $50,558 $36,230 $134,865
$106,152 Compensation and benefits $28,315
$37,979 $24,685 $97,670 $69,066 Subtract/(add back):
Compensation expense – stock options 509 504 262 1,408 658
Compensation expense – RSUs 776 934 699 2,563 2,019
Compensation expense – net deferred
compensation
(991 ) (891 ) (1,277 ) (2,479 ) (3,547 )
Unrealized mark-to-market gain/(loss) –
deferred compensation
332 656 (1 ) 1,058 152 Adjusted
compensation and benefits 27,689 36,776 25,002
95,120 69,784 Subtract:
Compensation expense – strategic
initiatives
500 500 648 1,610 3,418
Adjusted compensation and benefits,
excluding strategic initiatives
$27,189 $36,276 $24,354 $93,510 $66,366
Adjusted ratio of compensation expense to
revenues
68.7 % 72.7 % 69.0 % 70.5 % 65.7 %
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives
67.4 % 71.8 % 67.2 % 69.3 % 62.5 % Compensation Ratios
Excluding Hedge Fund Incentive Fees Adjusted net revenues $40,318
$50,558 $36,230 $134,865 $106,152 Subtract:
Compensation expense – hedge fund
incentive fees
4,982 10,372 2,038 17,797 6,322
Adjusted net revenues, excluding hedge
fund incentive fees
$35,336 $40,186 $34,192 $117,068
$99,830
Adjusted compensation and benefits,
excluding strategic initiatives
$27,189 $36,276 $24,354 $93,510 $66,366 Subtract:
Compensation expense – hedge fund
incentive fees
4,982 10,372 2,038 17,797 6,322
Adjusted compensation and benefits,
excluding strategic initiatives and hedge fund incentive fees
$22,207 $25,904 $22,316 $75,713 $60,044
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives and hedge fund incentive
fees
62.8 % 64.5 % 65.3 % 64.7 % 60.1 %
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 expenses 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 with regard to other CLOs, (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;
- 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 ending
on or before June 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 and JMP Credit Advisors III, which is
required by GAAP;
- unrealized mark-to-market gains or
losses on the investment portfolio at Harvest Capital Credit;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments as well as
certain warrant positions; and
- a combined federal, state and local
income tax rate of 38%.
A reconciliation of JMP Group’s net income to its operating net
income for the quarter and nine months ended September 30, 2014,
and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands, except
per share amounts) Sept. 30, 2014 June 30, 2014 Sept.
30, 2013 Sept. 30, 2014 Sept. 30, 2013
Net income attributable to JMP Group
Inc.
$1,495 $3,195 $3,289 $8,688 $135 Add back:
Income tax expense
1,460 2,450 1,634 5,606 178
Income before taxes
2,955 5,645 4,923 14,294 313 Add back/(subtract):
Compensation expense – stock options 509 504 262 1,408 658
Compensation expense – RSUs 776 934 699 2,563 2,019
Compensation expense – net deferred
compensation
(991 ) (891 ) (1,277 ) (2,479 ) (3,547 )
Net amortization of liquidity discounts –
JMP Credit Advisors CLO I
-
- - - 14,979
General loan loss provision –
collateralized loan obligations
913 380 274 1,838 1,095
Unrealized mark-to-market (gain) – Harvest
Capital Credit
- - - - (162 )
Realization of mark-to-market gain –
Harvest Capital Credit
- - - - 772
Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants
1,392 (72 ) (531 ) 1,494 (617 ) Operating income
before taxes 5,554 6,500 4,350 19,118 15,510 Income tax
expense (assumed rate of 38%) 2,111 2,470 1,653
7,265 5,893 Operating net income $3,443
$4,030 $2,697 $11,853 $9,617
Operating net income per share: Basic $0.16 $0.19 $0.12 $0.55 $0.43
Diluted (1) $0.15 $0.18 $0.12 $0.52 $0.43 Weighted average
shares outstanding: Basic 21,686 21,712 22,014 21,739 22,271
Diluted (1) 23,093 22,901 22,713 22,843 22,669 (1) In 2013
and the first quarter of 2014, JMP Group issued restricted stock
units, or RSUs, bearing non-forfeitable dividend equivalent rights.
GAAP requires RSUs with non-forfeitable dividend equivalent rights
to be included in the diluted share count (without applying the
treasury method). Management prefers to present a non-GAAP diluted
share count for the period, in keeping with the presentation for
quarters not impacted by this GAAP requirement for such RSUs. The
non-GAAP diluted share count reflects the impact of such RSUs under
the treasury method, which is consistent with the calculation of
the dilutive impact of all other RSUs outstanding. On a GAAP basis,
the weighted average number of diluted shares outstanding for the
quarter and nine months ended September 30, 2014, was 23,833,756
and 23,680,133, respectively. Given those denominators, operating
net income per diluted share would have instead been $0.14 for the
quarter and $0.50 for the nine months ended September 30, 2014,
respectively.
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 with regard to
other CLOs, (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 September 30, 2014, is set forth
below.
Quarter Ended September 30, 2014
Corp. Invest- HGC Consoli-
Broker- Asset Credit Operating ment Corp. Elimin- JMP Consoli-
dated JMP (in thousands, except per share amounts) Dealer Mgmt.
Mgmt. Platforms Income Costs ations Group dation Group
Revenues: Investment banking $17,063 - - $17,063 - - - $17,063 -
$17,063 Brokerage 6,455 - - 6,455 - - - 6,455 - 6,455 Asset
management-related fees (1) - $11,212 $1,235 12,447 - -
($1,344
) 11,103 ($281 ) 10,822 Principal transactions (2) - - - - $1,134 -
- 1,134 (4,351 ) (3,217 ) Gain on sale and payoff of loans - - - -
(12 ) - - (12 ) - (12 ) Net dividend income - - - - 242 - - 242 -
242 Net interest income - - - - 4,369 - - 4,369 (10 ) 4,359
Provision for loan losses - - - - (36 ) - - (36 ) -
(36 ) Adjusted net revenues 23,518 11,212 1,235 35,965 5,697
- (1,344 ) 40,318 (4,642 ) 35,676 Expenses: Non-interest
expense/(income) (3) 20,107 9,899 1,172 31,178 1,544 3,276 (1,344 )
34,654 41 34,695 Less: Non-controlling interest (4) - 8 - 8
101 - - 109 (4,683 ) (4,574 )
Operating income/(loss) before taxes
3,411 1,305 63 4,779 4,052 (3,276 ) - 5,555 - 5,555 Income
tax expense/(benefit) 1,296 497 24 1,817 1,540 (1,245 ) -
2,112 - 2,112 Operating net
income/(loss) $2,115 $808 $39 $2,962 $2,512 ($2,031 ) -
$3,443 - $3,443
Operating net income/(loss) per share:
Basic $0.10 $0.04 $0.00 $0.14 $0.12 ($0.09 ) - $0.16 - $0.16
Diluted (5) $0.09 $0.04 $0.00 $0.13 $0.11 ($0.09 ) - $0.15 - $0.15
(1) Reflects revenues detailed in section above titled
“Asset Management-Related Fee Revenues;” management fees of $0.3
million are eliminated upon consolidation of two Harvest Growth
Capital funds. (2) Reverses net unrealized gains and losses
on strategic equity investments and warrants. Excludes
non-controlling interests in net realized and unrealized gains
totaling $4.4 million that are recognized upon consolidation of two
Harvest Growth Capital funds. (3) Reverses stock-based
compensation expense as well as accounting adjustments related to
deferred compensation expense and excludes fund-related expenses
totaling $41,000 that are recognized upon consolidation of two
Harvest Growth Capital funds. (4) Excludes non-controlling
interests totaling $4.7 million in the net realized and unrealized
gains of two Harvest Growth Capital funds that are recognized upon
consolidation of the entities. (5) In 2013 and the first
quarter of 2014, JMP Group issued restricted stock units, or RSUs,
bearing non-forfeitable dividend equivalent rights. GAAP requires
RSUs with non-forfeitable dividend equivalent rights to be included
in the diluted share count (without applying the treasury method).
Management prefers to present a non-GAAP diluted share count for
the period, in keeping with the presentation for quarters not
impacted by this GAAP requirement for such RSUs. The non-GAAP
diluted share count reflects the impact of such RSUs under the
treasury method, which is consistent with the calculation of the
dilutive impact of all other RSUs outstanding. On a GAAP basis, the
weighted average number of diluted shares outstanding for the
quarter ended September 30, 2014, was 23,833,756; given that
denominator, operating net income per diluted share would have been
$0.14.
A statement of JMP Group’s operating net income on a segment
basis for the nine months ended September 30, 2014, is set
forth below.
Nine Months Ended September 30, 2014 Corp.
Invest- HGC
Consoli- Broker- Asset Credit Operating ment Corp. Elimin- JMP
Consoli- dated JMP (in thousands, except per share amounts) Dealer
Mgmt. Mgmt. Platforms Income Costs ations Group dation Group
Revenues: Investment banking $65,265 - - $65,265 - - ($88 ) $65,177
- $65,177 Brokerage 19,585 - - 19,585 - - - 19,585 - 19,585 Asset
management-related fees (1) 50 $32,897 $3,842 36,789 - - (4,166 )
32,623 ($1,027 ) 31,596 Principal transactions (2) - - - - $4,801 -
- 4,801 (2,647 ) 2,154 Gain on sale and payoff of loans - - - -
(183 ) - - (183 ) - (183 ) Net dividend income - - - - 738 - - 738
- 738 Net interest income - - - - 11,938 - - 11,938 (31 ) 11,907
Provision for loan losses - - - - 186 -
- 186 - 186 Adjusted net revenues
84,900 32,897 3,842 121,639 17,480 - (4,254 ) 134,865 (3,705 )
131,160 Expenses: Non-interest expense/(income) (3) 69,983
30,813 3,184 103,980 4,370
$11,490
(4,166 ) 115,674 143 115,817 Less: Non-controlling interest
(4) - (275 ) - (275 ) 343 - - 68 (3,848
) (3,780 )
Operating income/(loss) before taxes
14,917 2,359 658 17,934 12,767 (11,490 ) (88 ) 19,123 - 19,123
Income tax expense/(benefit) 5,669 898 250 6,817
4,851 (4,365 ) (33 ) 7,270 - 7,270
Operating net income/(loss) $9,248 $1,461 $408
$11,117 $7,916 ($7,125 ) ($55 ) $11,853 -
$11,853
Operating net income/(loss) per share:
Basic $0.43 $0.07 $0.02 $0.52 $0.36 ($0.33 ) ($0.00 ) $0.55 - $0.55
Diluted (5) $0.40 $0.06 $0.02 $0.48 $0.35 ($0.31 ) ($0.00 ) $0.52 -
$0.52 (1) Reflects revenues detailed in section above titled
“Asset Management-Related Fee Revenues;” management fees of $1.0
million are eliminated upon consolidation of two Harvest Growth
Capital funds. (2) Reverses net unrealized gains and losses
on strategic equity investments and warrants. Excludes
non-controlling interests in net realized and unrealized gains
totaling $2.7 million that are recognized upon consolidation of two
Harvest Growth Capital funds. (3) Reverses stock-based
compensation expense as well as accounting adjustments related to
deferred compensation expense and excludes fund-related expenses
totaling $143,000 that are recognized upon consolidation of two
Harvest Growth Capital funds. (4) Excludes non-controlling
interests totaling $3.8 million in the net realized and unrealized
gains of two Harvest Growth Capital funds that are recognized upon
consolidation of the entities. (5) In 2013 and the first
quarter of 2014, JMP Group issued restricted stock units, or RSUs,
bearing non-forfeitable dividend equivalent rights. GAAP requires
RSUs with non-forfeitable dividend equivalent rights to be included
in the diluted share count (without applying the treasury method).
Management prefers to present a non-GAAP diluted share count for
the period, in keeping with the presentation for quarters not
impacted by this GAAP requirement for such RSUs. The non-GAAP
diluted share count reflects the impact of such RSUs under the
treasury method, which is consistent with the calculation of the
dilutive impact of all other RSUs outstanding. On a GAAP basis, the
weighted average number of diluted shares outstanding for the nine
months ended September 30, 2014, was 23,680,133; given that
denominator, operating net income per diluted share would have been
$0.50.
Book Value per Share
At September 30, 2014, JMP Group’s tangible book value per share
was $6.32, as set forth below.
(in thousands, except per share amounts) Sept. 30, 2014
June 30, 2014 Sept. 30, 2013 Total JMP Group
stockholders' equity $136,687 $133,593 $123,740 Less: Goodwill and
intangible assets - - - Tangible stockholders'
equity $136,687 $133,593 $123,740
Tangible book value per share $6.32 $6.16 $5.63
Basic shares outstanding 21,619 21,690 21,961
Quarterly operating ROTE (1) 10.2 % 12.2 % 8.8 % LTM operating ROTE
(1) 12.1 % 11.8 % 12.6 % (1) Return on tangible equity
(ROTE) equals annualized operating net income divided by average
tangible stockholders’ equity.
Share Repurchase Activity
During the quarter ended September 30, 2014, JMP Group
repurchased 82,949 shares of its common stock at an aggregate price
of approximately $0.5 million, or $6.43 per share. At quarter-end,
approximately 0.8 million shares remained eligible for
repurchase under the company’s existing repurchase authorization.
Subsequently, on October 8, 2014, the company’s board of directors
increased the repurchase authorization such that 1.5 million shares
were eligible for repurchase.
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, 2013, as filed with the Securities and Exchange Commission on
March 13, 2014, 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, 2013 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 Friday, October 24, 2014. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
22366841.
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 an investment banking and asset management
firm that provides investment banking, sales and trading, and
equity research services to corporate and institutional clients as
well as alternative asset management products and services to
institutional and high-net-worth investors. JMP Group operates
through three subsidiaries: JMP Securities, Harvest Capital
Strategies and JMP Credit Advisors. For more information, visit
www.jmpg.com.
JMP GROUP INC. Consolidated Statements of
Financial Condition
(Unaudited)
(in thousands) Sept. 30, 2014 Dec. 31,
2013 Assets Cash and cash equivalents $87,735 $65,906
Restricted cash and deposits 199,496 68,029 Marketable securities
owned, at fair value 35,630 29,295 Other investments 199,781
161,773 Loans held for investment, net of allowance for loan losses
1,786
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
917,715 727,270 Deferred tax assets 7,220 12,492 Other assets
42,305 57,166 Total assets $1,491,668 $1,121,931 Liabilities
and Stockholders' Equity Liabilities: Marketable securities
sold, but not yet purchased, at fair value $18,462 $13,749 Accrued
compensation 46,800 51,347 Asset-backed securities issued 1,013,849
716,423 Note payable - 15,000 Line of credit - 2,895 Bond payable
94,300 46,000 Deferred tax liability 6,984 3,625 Other liabilities
33,284 35,652 Total liabilities 1,213,679 884,691
Stockholders' Equity: Total JMP Group Inc. stockholders' equity
136,687 126,385 Non-redeemable non-controlling interest 141,302
110,855 Total equity 277,989 237,240 Total liabilities and
stockholders' equity $1,491,668 $1,121,931
JMP GROUP
INC. Consolidated Statements of Operations
(Unaudited)
Quarter Ended Nine Months Ended (in thousands,
except per share amounts) Sept. 30, 2014 Sept. 30, 2013
Sept. 30, 2014 Sept. 30, 2013 Revenues: Investment
banking $17,063 $19,137 $65,177 $52,301 Brokerage 6,455 5,750
19,585 17,924 Asset management fees 9,630 5,328 30,032 15,606
Principal transactions (4,276 ) 640 1,719 4,849 Loss/(gain) on
sale, payoff and mark-to-market of loans (12 ) 166 (183 ) 1,591 Net
dividend income 242 243 739 290 Other income 1,192 267
1,564 581 Non-interest revenues 30,294
31,531 118,633 93,142 Interest income
9,973 8,734 27,773 24,603 Interest expense (5,614 ) (4,421 )
(15,866 ) (25,825 ) Net interest income/(expense) 4,359
4,313 11,907 (1,222 ) Provision for loan
losses (956 ) (467 ) (1,665 ) (2,391 ) Total net revenues 33,697
35,377 128,875 89,529
Non-interest expenses: Compensation and benefits 28,315 24,685
97,670 69,066 Administration 1,901 1,919 5,383 7,255 Brokerage,
clearing and exchange fees 772 939 2,515 2,851 Travel and business
development 890 994 2,721 2,991 Communications and technology 970
907 2,860 2,592 Occupancy 846 822 2,522 2,434 Professional fees
1,157 632 3,233 2,468 Depreciation 235 231 689 695 Other 236
342 778 649 Total non-interest expense 35,322
31,471 118,371 91,001
Net (loss)/income before income tax
expense
(1,625 ) 3,906 10,504 (1,472 ) Income tax expense 1,460
1,634 5,606 178 Net (loss)/income (3,085 )
2,272 4,898 (1,650 )
Less: Net (loss)/income attributable to
non-controlling interests
(4,580 ) (1,017 ) (3,790 ) (1,785 ) Net income attributable to JMP
Group Inc. $1,495 $3,289 $8,688 $135
Net income attributable to JMP Group Inc. per share: Basic
$0.07 $0.15 $0.38 $0.01 Diluted $0.06 $0.14 $0.37 $0.01
Weighted average common shares outstanding: Basic 21,686 22,014
21,739 22,271 Diluted 23,834 22,713 23,680 22,669
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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