JMP Group LLC (NYSE: JMP), an investment banking and alternative
asset management firm, reported financial results today for its
predecessor, JMP Group Inc., for the quarter and full fiscal year
ended December 31, 2014. As of January 1, 2015, JMP Group operates
as a limited liability company that is taxed as a partnership, and
no longer as a corporation, for U.S. federal income tax purposes.
The first earnings release regarding the financial results of JMP
Group LLC will be for the first quarter of 2015.
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were $44.0
million, a decrease of 8.1% from $47.9 million for the fourth
quarter of 2013. For the year ended December 31, 2014, adjusted net
revenues were a record $178.9 million, an increase of 16.1% from
$154.0 million for the year ended December 31, 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 $4.7 million,
or $0.21 per diluted share, an increase of 20.8% from
$3.9 million, or $0.17 per share, for the fourth quarter of
2013. For the year ended December 31, 2014, operating net income
was $16.6 million, or $0.73 per share, an increase of 22.6% from
$13.5 million, or $0.60 per share, for the year ended December
31, 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.”
- Total net revenues under generally
accepted accounting principles, or GAAP, were $54.1 million and
$182.9 million for the quarter and year ended December 31, 2014,
respectively, compared to $59.7 million and $149.2 million for the
quarter and year ended December 31, 2013, respectively.
- Net income attributable to JMP Group on
a GAAP basis was $4.9 million, or $0.21 per diluted share, compared
to $3.5 million, or $0.16 per share, for the fourth quarter of
2013. For the year ended December 31, 2014, GAAP net income was
$13.6 million, or $0.58 per share, compared to $3.6 million,
or $0.16 per share, for the year ended December 31, 2013.
“JMP Group produced another good year in 2014, with operating
earnings increasing 23% to $0.73 per share,” said Chairman and
Chief Executive Officer Joe Jolson. “Excluding net investment
income and corporate costs, our three operating platforms earned a
record $0.60 per share, an increase of 25% from $0.48 per share for
2013. The strong results drove an 8% increase in our tangible book
value per share to $6.26, despite the repurchase of 1.8 million
shares of our common stock at an average price per share of $6.58
during the year. In January, we converted to a publicly traded
partnership and declared three monthly cash distributions of $0.035
per share for the first quarter of 2015, representing a 50%
increase over our most recent quarterly dividend, which was paid in
November 2014. We anticipate that our payout ratio may be between
50% and 70% of operating earnings this year, compared to
approximately 30% last year.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $23.2 million, a decrease of 18.9% from $28.6 million
for the fourth quarter of 2013. The broker-dealer segment’s
operating margin on adjusted net revenues was 10.8%, compared to
14.5% for the prior quarter and 15.7% for the fourth quarter of
2013.
At Harvest Capital Strategies, the asset management segment,
adjusted net revenues of $13.2 million increased 19.0% from $11.1
million for the fourth quarter of 2013. JMP Group’s return on its
capital invested in hedge funds managed by Harvest Capital
Strategies was 1.2% for the quarter and 7.4% for the year ended
December 31, 2014.
At JMP Credit Advisors, the corporate credit management segment,
adjusted net revenues totaled $1.4 million, an increase of
16.3% from $1.2 million for the fourth quarter of 2013.
A summary of JMP Group’s operating net income per share by
segment for the quarter and year ended December 31, 2014, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended ($ as shown) Dec. 31, 2014
Sept. 30, 2014 Dec. 31, 2013 Dec. 31, 2014
Dec. 31, 2013 Broker-dealer $0.07 $0.09 $0.12 $0.48 $0.39 Asset
management 0.05 0.04 0.05 0.11 0.06 Corporate credit management
0.00 0.00 0.01 0.01
0.03 Operating platform EPS 0.12 0.13 0.18
0.60 0.48 Investment income 0.18 0.11 0.14 0.53 0.56 Corporate
costs (0.09 ) (0.09 ) (0.15 ) (0.40 )
(0.44 ) Operating EPS (diluted) $0.21 $0.15 $0.17
$0.73 $0.60
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 $15.9 million, a decrease of
27.3% from $21.9 million for the fourth quarter of 2013. For the
year ended December 31, 2014, investment banking revenues were
$81.1 million, an increase of 9.3% from $74.2 million for the
year ended December 31, 2013.
A summary of the company’s investment banking revenues and
transaction counts for the quarter and year ended December 31,
2014, and for comparable prior periods is set forth below.
Quarter Ended Year Ended Dec. 31, 2014 Sept.
30, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013 ($
in thousands) Count Revenues Count Revenues Count
Revenues Count Revenues Count Revenues Public
equity 27 $10,714 26 $9,834 26 $10,503 120 $54,786 123 $39,756
Debt and convertible securities
5 1,670 4 470 9 8,730 20 4,801 32 18,762
Private capital markets and other
2 1,685 1 125 - - 4 2,834 4 4,509 Strategic advisory 2 1,824 4
6,634 3 2,639 17 18,650 12 11,146 Total 36 $15,893 35 $17,063 38
$21,872 161 $81,071 171 $74,173
Brokerage
Net brokerage revenues were $7.3 million, an increase of 9.4%
from $6.7 million for the fourth quarter of 2013. For the year
ended December 31, 2014, net brokerage revenues were $26.9 million,
an increase of 9.3% from $24.6 million for the year ended December
31, 2013.
Asset Management
Asset management-related fee revenues were $13.1 million, an
increase of 19.4% from $10.9 million for the fourth quarter of
2013, largely due to strong results from equity interests in
RiverBanc and Accord Group Holdings. For the year ended
December 31, 2014, asset management-related fee revenues were
$45.7 million, an increase of 58.1% from $28.9 million for the
year ended December 31, 2013, primarily due to an increase of $11.9
million in incentive fees, to $27.4 million. 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, 2014, totaled
$2.1 billion, including $1.0 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 $2.2 billion at September 30, 2014, and $1.7
billion at December 31, 2013. Including sponsored funds in which
Harvest Capital Strategies owns an economic interest, client assets
under management totaled $2.5 billion at December 31, 2014.
At December 31, 2014, private capital, including corporate
credit, small business lending, venture capital and real
estate-related advisory services, represented 63.3% of client
assets under management, including sponsored funds.
Principal Transactions
Principal transactions generated net realized and unrealized
gains of $12.1 million and $13.8 million for the quarter and year
ended December 31, 2014, respectively, compared to net realized and
unrealized gains of $15.9 million and $20.7 million for the quarter
and year ended December 31, 2013, respectively.
A summary of the company’s principal transaction revenues for
the quarter and year ended December 31, 2014, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2014
Sept. 30, 2014 Dec. 31, 2013 Dec. 31, 2014
Dec. 31, 2013 Hedge fund investments $1,366 $1,784
$2,317 $7,112 $5,555 Principal investments:
Investment in Harvest Capital Credit
Corporation
(1,129 ) (1,273 ) - (2,546 ) 69 Other principal investments 254
26 140 227 140 Total principal investments
(875 ) (1,247 ) 140 (2,319 ) 209 Venture investments:
Investment in Harvest Growth Capital
funds
438 (164 ) 500 255 534 Other venture investments and warrants 237
(298 ) 657 483 2,488 Total venture investments 675
(462 ) 1,157 738 3,022
Principal transaction revenues net of
non-controlling interests in Harvest Growth Capital funds
1,166 75 3,614 5,531 8,786
Non-controlling interests in Harvest
Growth Capital funds
10,963 (4,351 ) 12,264 8,317 11,941 Total
principal transaction revenues $12,129 ($4,276 ) $15,878
$13,848 $20,727
Included in the net gain of $12.1 million for the quarter ended
December 31, 2014, was a gain of $11.0 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 2.5% 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 $11.0 million is not included in adjusted
net revenues. Net of its non-controlling interests, JMP Group had a
net realized and unrealized gain of $0.4 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 3.2% and 16.0% for the quarter and year ended
December 31, 2014, respectively, compared to 7.2% and 35.5% for the
quarter and year ended December 31, 2013, respectively.
At December 31, 2014, discounts and reserves (including
liquidity discounts, allowances for loan losses and deferred loan
fees) equaled $10.5 million, or 1.0% of gross performing loans
outstanding at JMP Credit. At December 31, 2013, such discounts and
reserves equaled $8.6 million, or 1.2% of gross performing loans
outstanding. There were no impaired loans at either December 31,
2014, or December 31, 2013.
For the quarter ended December 31, 2014, JMP Credit was required
under GAAP to release a net $1.2 million of general loan loss
reserves, due to the better-than-expected credit loss experience of
its portfolio over the past five years. For the year ended December
31, 2014, the net loan loss provision totaled $0.4 million. At
December, 2014, general loan loss reserves equaled 0.4% of gross
performing loans at JMP Credit.
Net Interest Income
Net interest income was $4.7 million, compared to net interest
income of $4.5 million for the fourth quarter of 2013.
For the year ended December 31, 2014, net interest income was
$16.6 million, compared $3.2 million for the year ended December
31, 2013, when interest expense due to net amortization of
liquidity discounts at JMP Credit equaled $15.0 million. Excluding
the amortization-related expense, net interest income would have
been $18.2 million for the year ended December 31, 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 $16.4 million for the year ended December
31, 2013.
Expenses
Compensation and Benefits
Compensation and benefits expense was $26.0 million, compared to
$33.4 million for the fourth quarter of 2013. With regard to
annually awarded compensation, a concept which excludes
amortization expense from stock-based awards but accelerates and
recognizes the cost of net deferred compensation related to the
period, compensation and benefits expense was 59.2% of adjusted net
revenues, compared to 71.7% for the fourth quarter of 2013. Further
excluding compensation expense related to strategic initiatives and
hedge fund incentive fees, the compensation ratio was 55.6%,
compared to 65.5% for the fourth quarter of 2013.
For the year ended December 31, 2014, compensation and benefits
expense was $123.7 million, compared to $102.4 million for the year
ended December 31, 2013. With regard to annually awarded
compensation, compensation and benefits expense was 67.7% of
adjusted net revenues, compared to 67.6% for the year ended
December 31, 2013. Further excluding compensation expense related
to strategic initiatives and hedge fund incentive fees, the
compensation ratio was 62.4%, compared to 61.7% for the year ended
December 31, 2013.
For more information on compensation ratios, please see the
section below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $8.2 million, compared to $7.3
million for the fourth quarter of 2013. For the year ended December
31, 2014, non-compensation expense was $28.9 million, compared to
$29.2 million for the year ended December 31, 2013. Excluding
costs related to JMP Group’s conversion to a publicly traded
limited liability company, non-compensation expense would have been
$7.8 million for the quarter and $28.0 million for the year ended
December 31, 2014.
Personnel
At December 31, 2014, the company had 235 full-time employees,
compared to 233 at September 30, 2014, and 235 at December 31,
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 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;
- 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 year ended December 31, 2014, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2014
Sept. 30, 2014 Dec. 31, 2013 Dec. 31, 2014
Dec. 31, 2013 Revenues: Non-interest revenues $48,099
$30,294 55,474 $166,732 $148,616 Net interest income 4,737 4,359
4,458 16,644 3,236 Loan loss credit/(provision) 1,229 (956 )
(246 ) (436 ) (2,637 ) Total net revenues 54,065 33,697 59,686
182,940 149,215
Asset management fees earned on Harvest
Growth Capital funds and Harvest Capital Credit (1) (2)
281 281 386 1,306 2,152
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
54,346 33,978 60,072 184,246 149,929
Add back/(subtract):
Net amortization of liquidity discounts on
loans and asset-backed securities issued
- - - - 14,979
General loan loss (credit)/provision –
collateralized loan obligations
(151 ) 919 200 1,700 1,705
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
1,073 1,392 21 2,567 (596 )
Non-controlling interests in net
unrealized (gains)/losses on Harvest Growth Capital funds
(10,956 ) 4,361 (12,248 ) (8,278 ) (11,925 )
Unrealized mark-to-market (gain)/loss –
deferred compensation
(321 ) (332 ) (168 ) (1,379 ) (320 ) Adjusted net revenues $43,991
$40,318 $47,877 $178,856 $154,029
(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, 2014, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2014
Sept. 30, 2014 Dec. 31, 2013 Dec. 31, 2014
Dec. 31, 2013 Base management fees: Fees reported as asset
management fees $3,030 $2,983 $2,612 $11,332 $10,114
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
827 769 697 3,169 2,437 Total base management fees 3,857 3,752
3,309 14,501 12,551 Incentive fees: Fees reported as asset
management fees 5,873 5,622 7,423 25,623 15,139
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
1,141 538 - 1,806 417 Total incentive fees 7,014 6,160 7,423 27,429
15,556 Other fee income: Total fundraising and other fees
2,203 1,191 217 3,767 798 Asset management-related fee
revenues $13,074 $11,103 $10,949 $45,697 $28,905 Summations:
Fees reported as asset management fees $8,903 $8,605 $10,035
$36,955 $25,253
Fees earned at Harvest Growth Capital,
Harvest Growth Capital II and Harvest Capital Credit/HCAP
Advisors
1,968 1,307 697 4,975 2,854 Fees reported as other fee income 2,203
1,191 217 3,767 798
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 year ended December 31, 2014, and for comparable prior periods
is set forth below.
Quarter Ended Year Ended ($ in thousands) Dec. 31,
2014 Sept. 30, 2014 Dec. 31, 2013 Dec. 31, 2014
Dec. 31, 2013 Compensation Ratios Adjusted net
revenues $43,991 $40,318 $47,877 $178,856
$154,029 Compensation and benefits $26,013
$28,315 $33,366 $123,683 $102,432 Subtract/(add back):
Compensation expense – stock options 509 509 262 1,917 920
Compensation expense – RSUs 1,181 776 804 3,744 2,823
Compensation expense – net deferred
compensation
(2,035 ) (991 ) (2,623 ) (4,514 ) (6,170 )
Unrealized mark-to-market gain – deferred
compensation
321 332 168 1,379 320
IPO-related administrative expense –
Harvest Capital Credit Corporation
- - 450 - 450 Adjusted
compensation and benefits 26,037 27,689 34,305
121,157 104,089 Subtract:
Compensation expense – strategic
initiatives
(850 ) 500 895 760 4,313
Adjusted compensation and benefits,
excluding strategic initiatives
$26,887 $27,189 $33,410 $120,397
$99,776
Adjusted ratio of compensation expense to
revenues
59.2 % 68.7 % 71.7 % 67.7 % 67.6 %
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives
61.1 % 67.4 % 69.8 % 67.3 % 64.8 %
Compensation Ratios Excluding Hedge Fund
Incentive Fees
Adjusted net revenues $43,991 $40,318 $47,877 $178,856
$154,029 Subtract:
Compensation expense – hedge fund
incentive fees
5,477 4,982 5,982 23,296 12,305
Adjusted net revenues, excluding hedge
fund incentive fees
$38,514 $35,336 $41,895 $155,560
$141,724
Adjusted compensation and benefits,
excluding strategic initiatives
$26,887 $27,189 $33,410 $120,397 $99,776 Subtract:
Compensation expense – hedge fund
incentive fees
5,477 4,982 5,982 23,296 12,305
Adjusted compensation and benefits,
excluding strategic initiatives and hedge fund incentive fees
$21,410 $22,207 $27,428 $97,101 $87,471
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives and hedge fund incentive
fees
55.6 % 62.8 % 65.5 % 62.4 % 61.7 %
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
2013 and reflected in operating net income for 2012 and 2013,
though recognized as a GAAP expense in 2013, 2014 and 2015, less
(b) compensation awarded at year-end 2013 and year-end 2014 and
deferred into 2014, 2015 and 2016;
- 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 year ended December 31, 2014, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands, except per
share amounts) Dec. 31, 2014 Sept. 30, 2014 Dec. 31,
2013 Dec. 31, 2014 Dec. 31, 2013
Net income attributable to JMP Group
Inc.
$4,869 $1,495 $3,493 $13,557 $3,629 Add back: Income tax
expense 2,535 1,460 3,772 8,141 3,950
Income before taxes 7,404 2,955 7,265 21,698 7,579
Add back/(subtract): Compensation expense – stock options 509 509
262 1,917 920 Compensation expense – RSUs 1,181 776 804 3,744 2,823
Compensation expense – net deferred
compensation
(2,035 ) (991 ) (2,623 ) (4,514 ) (6,170 )
Net amortization of liquidity discounts –
JMP Credit Advisors CLO I
- - - - 14,979
General loan loss provision –
collateralized loan obligations
(487 ) 913 146 1,351 1,241
IPO-related expense – Harvest Capital
Credit
- - 450 - 450
Unrealized mark-to-market (gain)/loss –
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
1,073 1,392 21 2,567 (596 ) Operating
income before taxes 7,645 5,554 6,325 26,763 21,836 Income
tax expense (assumed rate of 38%) 2,906 2,111 2,403
10,170 8,297 Operating net income $4,739
$3,443 $3,922 $16,593 $13,539
Operating net income per share: Basic $0.23 $0.16 $0.18
$0.77 $0.61 Diluted (1) $0.21 $0.15 $0.17 $0.73 $0.60
Weighted average shares outstanding: Basic 20,716 21,686 21,825
21,481 22,158 Diluted (1) 22,502 23,093 22,701 22,749 22,650 (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 year ended
December 31, 2014, was 23,119,908 and 23,541,594, respectively.
Given those denominators, operating net income per diluted share
would have instead been $0.20 for the quarter and $0.70 for the
year ended December 31, 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 December 31, 2014, is set forth
below.
Quarter Ended December 31, 2014 (in thousands, except per
share amounts)
Broker-Dealer
AssetMgmt.
Corp.CreditMgmt. OperatingPlatforms
Invest-mentIncome Corp.Costs Elimin-ations
JMPGroup HGCConsoli-dation
Consoli-dated JMPGroup Revenues: Investment banking
$15,893 - - $15,893 - - - $15,893 - $15,893 Brokerage 7,331 - -
7,331 - - - 7,331 - 7,331 Asset management-related fees (1) (50 )
$13,176 $1,424 14,550 $50 - ($1,526 ) 13,074 ($281 ) 12,793
Principal transactions (2) - - - - 1,919 - - 1,919 10,963 12,882
Gain on sale and payoff of loans - - - - (309 ) - - (309 ) - (309 )
Net dividend income - - - - 260 - - 260 - 260 Net interest income -
- - - 4,744 - - 4,744 (7 ) 4,737 Provision for loan losses -
- - - 1,079 - - 1,079 -
1,079 Adjusted net revenues 23,174 13,176 1,424 37,774 7,743
- (1,526 ) 43,991 10,675 54,666 Expenses: Non-interest
expense/(income) (3) 20,660 10,332 1,488 32,480 313 3,022 (1,526 )
34,289 (22 ) 34,267 Less: Non-controlling interest (4) -
1,061 - 1,061 999 - - 2,060
10,697 12,757
Operating income/(loss) before taxes
2,514 1,783 (64 ) 4,233 6,431 (3,022 ) - 7,642 - 7,642
Income tax expense/(benefit) 955 678 (24 ) 1,609 2,442
(1,148 ) - 2,903 - 2,903
Operating net income/(loss) $1,559 $1,105 ($40 ) $2,624
$3,989 ($1,874 ) - $4,739 - $4,739
Operating net income/(loss) per share:
Basic $0.08 $0.05 ($0.00 ) $0.13 $0.19 ($0.09 ) - $0.23 - $0.23
Diluted (5) $0.07 $0.05 ($0.00 ) $0.12 $0.18 ($0.09 ) - $0.21 -
$0.21 (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 $11.0
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 $22,000 that
are recognized upon consolidation of two Harvest Growth Capital
funds. (4) Excludes non-controlling interests totaling $10.7
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 December
31, 2014, was 23,119,908; given that denominator, operating net
income per diluted share would have been $0.20.
A statement of JMP Group’s operating net income on a segment
basis for the year ended December 31, 2014, is set forth below.
Year Ended December 31, 2014 (in thousands, except per share
amounts) Broker-Dealer AssetMgmt. Corp.CreditMgmt.
OperatingPlatforms Invest-mentIncome
Corp.Costs Elimin-ations JMPGroup
HGCConsoli-dation Consoli-dated
JMPGroup Revenues: Investment banking $81,158 - - $81,158 -
- ($88 ) $81,070 - $81,070 Brokerage 26,916 - - 26,916 - - - 26,916
- 26,916 Asset management-related fees (1) - $46,073 $5,266 51,339
$50 - (5,692 ) 45,697 ($1,308 ) 44,389 Principal transactions (2) -
- - - 6,720 - - 6,720 8,316 15,036 Gain on sale and payoff of loans
- - - - (492 ) - - (492 ) - (492 ) Net dividend income - - - - 998
- - 998 - 998 Net interest income - - - - 16,682 - - 16,682 (38 )
16,644 Provision for loan losses - - - - 1,265 - -
1,265 - 1,265 Adjusted net revenues
108,074 46,073 5,266 159,413 25,223 - (5,780 ) 178,856 6,970
185,826 Expenses:
Non-interest expense/(income) (3)
90,643 41,145 4,672 136,460 4,683 $14,512 (5,692 ) 149,963 121
150,084 Less: Non-controlling interest (4) - 786 - 786 1,342
- - 2,128 6,849 8,977
Operating income/(loss) before taxes
17,431 4,142 594 22,167 19,198 (14,512 ) (88 ) 26,765 - 26,765
Income tax expense/(benefit) 6,624 1,576 226 8,426 7,293
(5,513 ) (33 ) 10,173 - 10,173
Operating net income/(loss) $10,807 $2,566 $368 $13,741 $11,905
($8,999 ) ($55 ) $16,592 - $16,592
Operating net income/(loss) per share:
Basic $0.50 $0.12 $0.02 $0.64 $0.55 ($0.42 ) ($0.00 ) $0.77 - $0.77
Diluted (5) $0.48 $0.11 $0.01 $0.60 $0.53 ($0.40 ) ($0.00 ) $0.73 -
$0.73 (1) Reflects revenues detailed in section above titled
“Asset Management-Related Fee Revenues;” management fees of $1.3
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 $8.3
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 $121,000 that
are recognized upon consolidation of two Harvest Growth Capital
funds. (4) Excludes non-controlling interests totaling $6.8 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 year ended December
31, 2014, was 23,541,594; given that denominator, operating net
income per diluted share would have been $0.70.
Book Value per Share
At December 31, 2014, JMP Group’s tangible book value per share
was $6.26, as set forth below.
(in thousands, except per share amounts) Dec. 31, 2014
Sept. 30, 2014 Dec. 31, 2013 Total JMP Group
stockholders' equity $132,804 $136,687 $126,385 Less: Goodwill and
intangible assets - - - Tangible stockholders' equity $132,804
$136,687 $126,385 Tangible book value per share $6.26 $6.32
$5.79 Basic shares outstanding 21,216 21,619 21,819
Quarterly operating ROTE (1) 14.1% 10.2% 12.5% LTM operating ROTE
(1) 12.6% 12.1% 10.9% (1) Return on tangible equity (ROTE)
equals annualized operating net income divided by average tangible
stockholders’ equity.
Share Repurchase Activity
During the quarter ended December 31, 2014, JMP Group
repurchased nearly 1.5 million shares of its common stock at an
aggregate price of approximately $9.8 million, or $6.61 per share.
At year-end, approximately 0.6 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 Form 10-K for the year ended December 31, 2013, as
filed with the Securities and Exchange Commission by JMP Group Inc.
on March 13, 2014, as well as in the similarly captioned sections
of other periodic reports filed by JMP Group Inc. or JMP Group LLC
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. EST on Friday, February 13, 2015. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
82853542.
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 LLC is an investment banking and asset management firm
that provides investment banking, equity research, and sales and
trading services to corporate and institutional clients as well as
alternative asset management products and services to institutional
and high-net-worth investors. JMP Group conducts its investment
banking and research, sales and trading activities through JMP
Securities; its hedge fund and other investment activities though
Harvest Capital Strategies; the underwriting and management of
investments in senior secured debt through JMP Credit Advisors; and
the management of Harvest Capital Credit Corporation (NASDAQ:
HCAP), a business development company that finances small and
midsized businesses, through HCAP Advisors. For more information,
visit www.jmpg.com.
JMP GROUP LLC Consolidated Statements of Financial
Condition
(Unaudited)
(in thousands) Dec. 31, 2014 Dec. 31, 2013
Assets Cash and cash equivalents $101,362 $65,906
Restricted cash and deposits 67,102 68,029 Marketable securities
owned, at fair value 29,466 29,295 Other investments 209,381
161,773 Loans held for investment, net of allowance for loan losses
1,997 825
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
1,038,848 727,270 Deferred tax assets 10,585 12,492 Other assets
57,929 56,341 Total assets $1,516,670 $1,121,931 Liabilities
and Stockholders' Equity Liabilities: Marketable securities
sold, but not yet purchased, at fair value $15,048 $13,749 Accrued
compensation 54,820 51,347 Asset-backed securities issued 1,001,137
716,423 Note payable - 15,000 Line of credit - 2,895 Bond payable
94,300 46,000 Deferred tax liability 19,330 3,625 Other liabilities
42,899 35,652 Total liabilities 1,227,534 884,691
Stockholders' Equity: Total JMP Group Inc. stockholders' equity
132,804 126,385 Non-redeemable non-controlling interest 156,332
110,855 Total equity 289,136 237,240 Total liabilities and
stockholders' equity $1,516,670 $1,121,931
JMP GROUP
LLC Consolidated Statements of Operations
(Unaudited)
Quarter Ended Year Ended (in thousands, except
per share amounts) Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014
Dec. 31, 2013 Revenues: Investment banking $15,893
$21,872 $81,070 $74,173 Brokerage 7,331 6,701 26,916 24,625 Asset
management fees 10,588 10,346 40,620 25,952 Principal transactions
12,129 15,878 13,848 20,727 (Loss)/gain on sale, payoff and
mark-to-market of loans (309 ) 215 (492 ) 1,806 Net dividend income
262 245 1,001 535 Other income 2,205 217 3,769
798 Non-interest revenues 48,099 55,474
166,732 148,616 Interest income 12,269 8,743
40,042 33,346 Interest expense (7,532 ) (4,285 ) (23,398 ) (30,110
) Net interest income/(expense) 4,737 4,458 16,644
3,236 Release of loan loss reserve/(provision
for loan losses) 1,229 (246 ) (436 ) (2,637 ) Total net
revenues 54,065 59,686 182,940 149,215
Non-interest expenses: Compensation and benefits 26,013
33,366 123,683 102,432 Administration 1,927 1,405 7,310 8,660
Brokerage, clearing and exchange fees 789 692 3,304 3,543 Travel
and business development 1,402 1,425 4,123 4,416 Communications and
technology 983 942 3,843 3,534 Occupancy 815 811 3,337 3,245
Professional fees 1,505 1,485 4,738 3,953 Depreciation 242 226 931
921 Other 564 311 1,342 960 Total
non-interest expense 34,240 40,663 152,611
131,664 Net income before income tax expense 19,825
19,023 30,329 17,551 Income tax expense 2,535 3,772
8,141 3,950 Net income 17,290 15,251 22,188 13,601
Less: Net income attributable to non-controlling interests 12,421
11,758 8,631 9,973 Net income
attributable to JMP Group Inc. $4,869 $3,493 $13,557
$3,628 Net income attributable to JMP Group
Inc. per share: Basic $0.22 $0.16 $0.60 $0.16 Diluted $0.21 $0.16
$0.58 $0.16 Weighted average common shares outstanding:
Basic 20,716 21,825 21,481 22,158 Diluted 23,120 22,701 23,542
23,317
Investor Relations ContactJMP Group LLCAndrew 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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