JMP Group LLC (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter and nine months ended September 30, 2015.
- Operating net income was $1.3 million,
or $0.06 per diluted share, a decrease of 63.5% from
$3.4 million, or $0.15 per share, for the third quarter of
2014. For the nine months ended September 30, 2015, operating
net income was $11.2 million, or $0.50 per share, a decrease of
5.2% from $11.9 million, or $0.52 per share, for the nine
months ended September 30, 2014. For more information about
operating net income, including a reconciliation to net income
attributable to JMP Group, see the section below titled “Non-GAAP
Financial Measures.”
- Adjusted net revenues, which exclude
certain non-cash items and non-controlling interests, were $27.1
million, a decrease of 31.8% from $39.7 million for the third
quarter of 2014. For the nine months ended September 30, 2015,
adjusted net revenues were $102.9 million, a decrease of 22.9% from
$133.5 million for the nine months ended September 30, 2014. For
more information about adjusted net revenues, including a
reconciliation to net revenues, see the section below titled
“Non-GAAP Financial Measures.”
- The net loss attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $3.0
million, or $0.14 per diluted share, compared to net income of $1.5
million, or $0.06 per share, for the third quarter of 2014. For the
nine months ended September 30, 2015, GAAP net income was
$0.9 million, or $0.04 per share, compared to $8.7 million, or
$0.37 per share, for the nine months ended September 30, 2014.
- Total net revenues on a GAAP basis were
$28.1 million and $109.5 million for the quarter and nine months
ended September 30, 2015, respectively, compared to $33.7 million
and $128.9 million for the quarter and nine months ended
September 30, 2014, respectively.
“Our third quarter results were disappointing but not entirely
unexpected, given the sharp selloff in smaller-cap U.S. equities
during the latter half of the period, which hurt our investment
banking business and led to modest losses on net invested capital
in our funds, versus our expectation of more normalized returns,”
said Chairman and Chief Executive Officer Joe Jolson. “For the
quarter, our taxable operating subsidiaries produced all of our
operating earnings, while our net corporate income—net investment
income less corporate costs—was break-even. Our operating return on
equity was under 4% for the quarter but was nearly 12% for the
latest twelve months.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $18.0 million, a decrease of 23.6% from $23.5 million
for the third quarter of 2014. The broker-dealer segment’s
operating margin on adjusted net revenues was 4.9%, compared to
14.5% for the third quarter of 2014.
At Harvest Capital Strategies, the asset management segment,
adjusted net revenues of $6.2 million decreased 42.0% from $10.7
million for the third quarter of 2014. JMP Group lost 0.7% on its
capital invested in hedge funds managed by Harvest Capital
Strategies for the quarter, compared to declines of 5.9% and 11.9%
for the HFR Equity Hedge (Total) and the Russell 2000 indices,
respectively.
At JMP Credit Advisors, the corporate credit management segment,
adjusted net revenues totaled $1.4 million, an increase of
13.5% from $1.2 million for the third quarter of 2014.
A summary of JMP Group’s operating net income per share by
segment for the quarter and nine months ended September 30, 2015,
and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended ($ as shown)
Sept. 30, 2015
June 30, 2015
Sept. 30, 2014 Sept. 30, 2015 Sept. 30, 2014
Broker-dealer $ 0.02 $ 0.13 $ 0.09 $ 0.28 $ 0.40 Asset management
0.03 0.00 0.04 0.04 0.06
Corporate credit management
0.01 0.01 0.00 0.03 0.02
Operating platform EPS 0.06 0.14 0.13 0.35 0.48 Net corporate
income (0.00 ) 0.07 0.02 0.15
0.04 Operating EPS (diluted) $ 0.06 $ 0.22 $ 0.15 $ 0.50 $
0.52
Note: Due to
rounding, numbers in columns above may not sum to totals
presented.
For more information about segment reporting; adjusted net
revenues, including a reconciliation to net revenues; and operating
net income, including a reconciliation to net income, see the
section below titled “Non-GAAP Financial Measures.”
Composition of Revenues
Investment Banking
Investment banking revenues were $11.9 million, a decrease of
30.2% from $17.1 million for the third quarter of 2014. For the
nine months ended September 30, 2015, investment banking revenues
were $53.9 million, a decrease of 17.2% from $65.2 million for
the nine months ended September 30, 2014.
A summary of the company’s investment banking revenues and
transaction counts for the quarter and nine months ended September
30, 2015, and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended Sept. 30, 2015
June 30, 2015 Sept. 30, 2014 Sept. 30, 2015
Sept. 30, 2014 ($ in thousands) Count Revenues Count
Revenues Count Revenues Count Revenues Count
Revenues Public equity 11 $ 9,876 27 $ 14,933 26 $ 9,834 72 $
41,404 93 $ 44,072
Debt and convertible securities
3 190 6 3,502 4 470 14 4,549 15 3,131
Private capital markets and other
- 290 - 75 1 125 1 911 2 1,148 Strategic advisory 3 1,562 2
2,821 4 6,634 9 7,079 15 16,826 Total
17 $ 11,918 35 $ 21,331 35 $ 17,063 96 $ 53,943 125 $ 65,177
Brokerage
Net brokerage revenues were $6.0 million, a decrease of 6.3%
from $6.5 million for the third quarter of 2014. For the nine
months ended September 30, 2015, net brokerage revenues were $18.5
million, a decrease of 5.5% from $19.6 million for the nine months
ended September 30, 2014.
Asset Management
Asset management-related fee revenues were $6.1 million, a
decrease of 42.8% from $10.6 million for the third quarter of 2014.
For the nine months ended September 30, 2015, asset
management-related fee revenues were $15.2 million, a decrease
of 52.0% from $31.7 million for the nine months ended
September 30, 2014, when incentive fees totaled $20.1 million,
compared to $4.4 million for the same period in 2015. For more
information about asset management-related fee revenues, see the
section below titled “Non-GAAP Financial Measures.”
Client assets under management at September 30, 2015, totaled
$2.3 billion, including $1.1 billion of funds managed by Harvest
Capital Strategies and HCAP Advisors and $1.2 billion par value of
loans and cash managed by JMP Credit Advisors. Client assets under
management were $2.0 billion at June 30, 2015, and $2.2 billion at
September 30, 2014. Including sponsored funds in which Harvest
Capital Strategies owns an economic interest, client assets under
management totaled $2.8 billion at September 30, 2015.
At September 30, 2015, private capital, including corporate
credit, small business lending, venture capital and real
estate-related advisory services, represented 67.0% of client
assets under management, including sponsored funds.
Principal Transactions
Principal transactions generated a net realized and unrealized
loss of $1.4 million, compared to $4.3 million for the third
quarter of 2014. For the nine months ended September 30, 2015,
principal transactions generated a net realized and unrealized gain
of $5.2 million, compared to $1.7 million for the nine months ended
September 30, 2014. For more information about principal
transaction revenues, see the section below titled “Non-GAAP
Financial Measures.”
Collateralized Loan Obligations
The net return on invested capital managed by JMP Credit
Advisors was 4.5%, compared to 5.6% for the third quarter of
2014.
At September 30, 2015, discounts and reserves (including
liquidity discounts, allowances for loan losses and deferred loan
fees) equaled $13.5 million, or 1.3% of gross performing loans
outstanding at JMP Credit. At September 30, 2014, such discounts
and reserves equaled $11.4 million, or 1.2% of gross performing
loans outstanding. There were no impaired loans at the end of
either period.
The net loan loss provision for the quarter was $0.6 million,
and at September 30, 2015, general loan loss reserves equaled 0.4%
of gross performing loans at JMP Credit.
Net Interest Income
Net interest income was $5.2 million and $16.1 million for the
quarter and nine months ended September 30, 2015,
respectively, compared to $4.4 million and $11.9 million for the
quarter and nine months ended September 30, 2014,
respectively.
Expenses
Compensation and Benefits
Compensation and benefits expense was $21.9 million, compared to
$28.3 million for the third quarter of 2014. With regard to
annually awarded compensation, a concept which excludes
amortization expense from share-based awards but accelerates and
recognizes the cost of net deferred compensation related to the
period, compensation and benefits expense was 70.3% of adjusted net
revenues, compared to 68.7% for the third quarter of 2014. Further
excluding compensation expense related to strategic initiatives and
hedge fund incentive fees, the compensation ratio was 67.8%,
compared to 62.7% for the third quarter of 2014.
For the nine months ended September 30, 2015, compensation and
benefits expense was $76.5 million, compared to $97.7 million for
the nine months ended September 30, 2014. With regard to annually
awarded compensation, compensation and benefits expense was 66.3%
of adjusted net revenues, compared to 70.5% for the nine months
ended September 30, 2014. Further excluding compensation expense
related to strategic initiatives and hedge fund incentive fees, the
compensation ratio was 65.6%, compared to 64.5% for the nine months
ended September 30, 2014.
For more information about compensation ratios, see the section
below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $7.7 million, compared to $7.0
million for the third quarter of 2014. For the nine months ended
September 30, 2015, non-compensation expense was $22.9 million,
compared to $20.7 million for the nine months ended September
30, 2014.
Book Value per Share
At September 30, 2015, JMP Group’s book value per share was
$6.19, as set forth below.
(in thousands, except per share amounts) Sept. 30,
2015 June 30, 2015 Sept. 30, 2014
Shareholders' equity $ 131,373 $ 136,144 $ 136,687
Book value per share $ 6.19 $ 6.41 $
6.32 Basic shares outstanding 21,211 21,241 21,619
Quarterly operating ROE (1) 3.8 % 14.6 % 10.2 % LTM
operating ROE (1) 11.8 % 13.4 % 12.1 % (1) Operating return
on equity (ROE) equals operating net income divided by average
shareholders’ equity. For more information about operating net
income, including a reconciliation to net income attributable to
JMP Group, see the section below titled “Non-GAAP Financial
Measures.”
Share Repurchase Activity
During the quarter ended September 30, 2015, JMP Group
repurchased 49,935 shares of its common stock at an aggregate price
of $0.3 million, or $6.25 per share. At quarter-end, 534,093 shares
remained eligible for repurchase under the company's existing
repurchase authorization.
Personnel
At September 30, 2015, the company had 245 full-time employees,
compared to 235 at June 30, 2015, and 233 at September 30,
2014.
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 a more meaningful comparison of JMP Group’s
financial performance in various periods. However, the non-GAAP
financial results presented should not be considered a substitute
for results that are presented in a manner consistent with GAAP. A
limitation of the non-GAAP financial measures presented is that the
adjustments concern gains, losses or expenses that JMP Group
generally expects to continue to recognize. The adjustment of these
non-GAAP items should not be construed as an inference that these
gains or expenses are unusual, infrequent or non-recurring.
Therefore, both GAAP measures of JMP Group’s financial performance
and the respective non-GAAP measures should be considered together.
The non-GAAP measures presented herein may not be comparable to
similarly titled measures presented by other companies.
Adjusted Net Revenue
Adjusted net revenue is a non-GAAP financial measure that (i)
includes asset management fees, net interest income, and other
revenues eliminated upon the consolidation of Harvest Growth
Capital and Harvest Growth Capital II (prior to the early adoption
of a new GAAP consolidation standard as of January 1, 2015), (ii)
reverses the general loan loss provision taken with regard to
certain CLOs, (iii) reverses net unrealized gains or losses on
strategic equity investments and warrants, (iv) excludes
non-controlling interests in net unrealized gains and losses on
Harvest Growth Capital and Harvest Growth Capital II (prior to the
early adoption of a new GAAP consolidation standard as of January
1, 2015), (v) excludes non-controlling interests in other sources
of revenue that are consolidated according to GAAP, and (vi)
reverses net 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;
Harvest Capital Strategies is managing member of Harvest Growth
Capital and Harvest Growth Capital II and, as a result of its
ownership, JMP Group consolidated the two funds and eliminated the
fees in consolidation until adopting an amended GAAP standard as of
January 1, 2015; presenting these fees in prior periods as though
Harvest Growth Capital and Harvest Growth Capital II were
deconsolidated presented the entities’ results in a manner similar
to those of the other investment funds managed by Harvest Capital
Strategies;
- the non-specific loss provision
recorded with regard to loans held 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 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; JMP Group consolidated the two funds
under GAAP until January 1, 2015, when an amended GAAP standard no
longer required consolidation; in prior periods, unrealized gains
and losses that did not accrue to the company were 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, 2015,
and for comparable prior periods is set forth below.
Quarter Ended
Nine Months Ended
(in thousands) Sept. 30, 2015 June 30, 2015 Sept. 30,
2014 Sept. 30, 2015 Sept. 30, 2014 Revenues:
Non-interest revenues $ 23,501 $ 34,499 $ 30,294 $ 93,518 $ 118,633
Net interest income 5,152 5,415 4,359 16,056 11,907 Loan loss
(provision)/credit (563 ) 545 (956 )
(75 ) (1,665 ) Total net revenues 28,090 40,459
33,697 109,499 128,875 Add back/(subtract):
General loan loss provision –
collateralized loan obligations
327 124 913 542 1,838
Net unrealized loss on strategic equity
investments and warrants
1,479 190 1,392 648 1,494
Non-controlling interests – Harvest Growth
Capital funds
- - 4,642 - 3,704
Non-controlling interests – other
revenues
(2,539 ) (2,500 ) (626 ) (7,657 ) (1,393 )
Unrealized mark-to-market (gain)/loss –
deferred compensation
(292 ) 7 (332 ) (90 )
(1,057 ) Adjusted net revenues $ 27,065 $ 38,280
$ 39,686 $ 102,942 $ 133,461
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, until January 1,
2015, JMP Group consolidated Harvest Growth Capital and Harvest
Growth Capital II in accordance with GAAP; for prior periods, asset
management fees generated by the two funds were 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, 2015, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands)
Sept. 30, 2015 June 30, 2015 Sept. 30, 2014 Sept. 30,
2015 Sept. 30, 2014 Base management fees: Fees
reported as asset management fees $ 4,131 $ 3,419 $ 3,470 $ 11,260
$ 9,618
Fees earned at Harvest Growth Capital and
Harvest Growth Capital II
- - 281 - 1,026
Less: Non-controlling interest in HCAP
Advisors
(350 ) (319 ) (239 ) (969 ) (645
) Total base management fees 3,781 3,100
3,512 10,291 9,999
Incentive fees: Fees reported as asset management fees 2,832
1,302 6,160 5,087 20,415
Less: Non-controlling interest in HCAP
Advisors
(267 ) (250 ) (264 ) (712 ) (326
) Total incentive fees 2,565 1,052
5,896 4,375 20,089
Other fee income: Total fundraising and other fees (279 )
62 1,192 524 1,563
Asset management-related fee revenues
$ 6,067 $ 4,214 $ 10,600 $ 15,190 $
31,651
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.
Adjusted Principal Transaction Revenues
Adjusted principal transaction revenue is a non-GAAP financial
measure that reverses net unrealized gains and losses on (i)
strategic equity investments and warrants and (ii) investments
related to deferred compensation, in keeping with the calculation
of adjusted net revenue, as detailed above.
A summary of the company’s principal transaction revenues for
the quarter and nine months ended September 30, 2015, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands)
Sept. 30, 2015
June 30, 2015
Sept. 30, 2014 Sept. 30, 2015 Sept. 30, 2014 Hedge
fund investments
($238
) $ 618 $ 1,784 $ 1,759 $ 5,747
Investment in Harvest Capital Credit
Corporation
(1,479 ) 735 (1,273 ) 256 (1,417 )
Investment in Harvest Growth Capital
funds
(284 ) 264 (164 ) (42 ) (183 ) Other principal investments 561
1,240 (272 ) 3,188 218
Principal transaction revenues before
non-controlling interests
(1,440 ) 2,857 75 5,161 4,365
Non-controlling interests – Harvest Growth
Capital funds
- - (4,351 ) - (2,646 )
Total principal transaction revenues (1,440 ) 2,857
(4,276 ) 5,161 1,719 Add
back/(subtract):
Unrealized mark-to-market loss – Strategic
equity investments and warrants
1,479 191 1,392 648 1,494
Unrealized mark-to-market (gain)/loss –
net deferred compensation
(292 ) 7 (333 ) (89 ) (1,057 )
Non-controlling interests – Harvest Growth
Capital funds
- - 4,351 - 2,646
Total operating adjustments 1,187 198
5,410 559 3,083
Total adjusted principal transaction
revenues
($253
) $ 3,055 $ 1,134 $ 5,720 $ 4,802
Due to Harvest Capital Strategies’ role as the manager and
managing member of Harvest Growth Capital and Harvest Growth
Capital II, GAAP previously required that JMP Group consolidate the
two venture capital funds, despite the company’s very limited
ownership of each one. Following a recent amendment to GAAP
standards regarding consolidation, JMP Group no longer consolidates
the funds; the company elected to adopt the new standard early, as
it is not required until 2016. In the table above, principal
transaction revenues before non-controlling interests are presented
so that all periods are comparable. Total principal transaction
revenues, while not comparable across periods due to the recently
revised accounting standards, reflect GAAP for each of the periods
shown.
Company management utilizes adjusted principal transaction
revenue because it is a component of adjusted net revenue. The
exclusion of certain elements of principal transaction revenues, as
presented above, results in an adjusted measure that is included as
“Principal transactions” among JMP Group’s revenues in the non-GAAP
presentation of segment results of operations that appears below.
Management believes that adjusting principal transaction revenues
and total revenues in these ways is useful in that it allows for a
clearer understanding and comparison of JMP Group’s financial
results for the periods presented.
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 share-based
awards, deferred compensation and non-controlling interests (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 six months ended June 30, 2015, and for comparable prior
periods is set forth below.
Quarter Ended Nine Months Ended ($ in
thousands) Sept. 30, 2015 June 30, 2015 Sept. 30,
2014 Sept. 30, 2015 Sept. 30, 2014 Compensation
Ratios Adjusted net revenues $ 27,065 $ 38,280
$ 39,686 $ 102,942 $ 133,461
Compensation and benefits $ 21,949 $ 27,524 $ 28,315 $ 76,537 $
97,670 Subtract/(add back): Compensation expense – stock
options and SARs 329 815 509 1,818 1,408 Compensation expense –
RSUs 236 375 776 1,018 2,563
Compensation expense – net deferred
compensation
1,802 1,670 (990 ) 4,540 (2,478 )
Unrealized mark-to-market gain – deferred
compensation
292 (7 ) 332 90 1,057
Compensation expense – non-controlling
interest
253 262 431 782
1,081 Adjusted compensation and benefits
19,037 24,409 27,257
68,289 94,039 Subtract:
Compensation expense – strategic initiatives -
- 500 - 1,610
Adjusted compensation and benefits,
excluding strategic initiatives
$ 19,037 $ 24,409 $ 26,757 $ 68,289 $
92,429
Adjusted ratio of compensation expense to
revenues
70.3 % 63.8 % 68.7 % 66.3 % 70.5 %
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives
70.3 % 63.8 % 67.4 % 66.3 % 69.3 % Compensation Ratios
Excluding Hedge Fund Incentive Fees Adjusted net revenues $
27,065 $ 38,280 $ 39,686 $ 102,942 $ 133,461 Subtract:
Compensation expense – hedge fund
incentive fees
2,165 29 4,989
2,263 17,819
Adjusted net revenues, excluding hedge
fund incentive fees
$ 24,900 $ 38,251 $ 34,697 $ 100,679 $
115,642
Adjusted compensation and benefits,
excluding strategic initiatives
$ 19,037 $ 24,409 $ 26,757 $ 68,289 $ 92,429 Subtract:
Compensation expense – hedge fund
incentive fees
2,165 29 4,989
2,263 17,819
Adjusted compensation and benefits,
excluding strategic initiatives and hedge fund incentive fees
$ 16,872 $ 24,380 $ 21,768 $ 66,026 $
74,610
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives and hedge fund incentive
fees
67.8 % 63.7 % 62.7 % 65.6 % 64.5 %
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 share-based awards and
deferred compensation, (ii) reverses the general loan loss
provision taken with regard to certain CLOs, (iii) reverses net
unrealized gains and losses on strategic equity investments and
warrants, and (iv) assumes an effective tax rate. In particular,
operating net income adjusts for:
- the grant of RSUs and 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-specific loan loss provision
recorded with regard to loans held 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 company’s strategic equity investments as well as
certain warrant positions; and
- a combined federal, state and local
income tax rate of 38% at the taxable direct subsidiary of parent
company JMP Group, while applying a tax rate of 0% to the company’s
other direct subsidiary, which is a “pass-through entity” for tax
purposes.
- A reconciliation of JMP Group’s net
income to its operating net income for the quarter and nine months
ended September 30, 2015, and for comparable prior periods is set
forth below.
Quarter Ended Nine Months Ended (in thousands,
except per share amounts) Sept. 30, 2015 June 30, 2015
Sept. 30, 2014 Sept. 30, 2015 Sept. 30, 2014
Net (loss)/income attributable to JMP Group ($2,991 ) $ 5,826 $
1,495 $ 943 $ 8,688 Add back: Income tax (benefit)/expense
(343 ) (2,864 ) 1,460 3,793
5,606 (Loss)/income before taxes (3,334 ) 2,962 2,955
4,736 14,294 Add back/(subtract):
Compensation expense – stock options and
SARs
329 815 509 1,818 1,408 Compensation expense – RSUs 236 375 776
1,018 2,563
Compensation expense – net deferred
compensation
1,801 1,669 (991 ) 4,539 (2,479 )
General loan loss provision –
collateralized loan obligations
327 124 913 542 1,838
Unrealized mark-to-market loss – strategic
equity investments and warrants
1,479 189 1,392
648 1,494 Operating income before taxes 838 6,134
5,554 13,301 19,118 Income tax (benefit)/expense (420
) 1,284 2,111 2,062 7,265
Operating net income $ 1,258 $ 4,850 $ 3,443
$ 11,239 $ 11,853 Operating net income per
share: Basic $ 0.06 $ 0.23 $ 0.16 $ 0.53 $ 0.55 Diluted (1) $ 0.06
$ 0.22 $ 0.15 $ 0.50 $ 0.52 Weighted average shares
outstanding: Basic 21,241 21,233 21,686 21,230 21,739 Diluted (1)
22,665 22,540 23,093 22,438 22,843 (1) In 2013 and the first
quarter of 2014, JMP Group issued restricted share units, or RSUs,
bearing non-forfeitable distribution equivalent rights. GAAP
requires RSUs with non-forfeitable distribution equivalent rights
to be included in the diluted share count (without applying the
treasury method). Management presents 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, 2015, was 22,863,767; given that
denominator, operating net income per diluted share would remain
$0.49.
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)
reverses the general loan loss provision taken with regard to
certain CLOs, (ii) reverses net unrealized gains and losses on
strategic equity investments and warrants, (iii) excludes
non-controlling interests in other sources of revenue that are
consolidated according to GAAP, and (iv) reverses unrealized
mark-to-market gains or losses on investments related to deferred
compensation. 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 share-based awards and deferred
compensation. Expenses derived from non-controlling interests in
entities that are consolidated according to GAAP have also been
reversed. For the purposes of calculating operating net income, an
effective tax rate of 38% is assumed for JMP Group’s taxable
subsidiary.
A statement of JMP Group’s operating net income on a segment
basis for the quarter ended September 30, 2015, is set forth
below.
Quarter Ended September 30, 2015
Corporate Net Broker- Asset Credit
Operating Corporate Elimin- JMP (in thousands, except per share
amounts) Dealer Mgmt. Mgmt. Platforms Income ations Group
Revenues: Investment banking $ 11,918 - - $ 11,918 - - $ 11,918
Brokerage 6,046 - - 6,046 - - 6,046 Asset management-related fees -
$ 6,212 $ 1,402 7,614 - ($1,547 ) 6,067 Principal transactions - -
- - ($253 ) - (253 )
Gain on sale and payoff of loans
- - - - 145 - 145 Net dividend income - - - - 263 - 263 Net
interest income - - - - 2,879 - 2,879 Provision for loan losses
- - - - - - -
Adjusted net revenues 17,964 6,212 1,402 25,578 3,034 (1,547
) 27,065 Expenses: Non-interest expense/(income)
17,091 5,285 1,015 23,391 4,383 (1,547
) 26,227 Operating income before taxes 873 927 387
2,187 (1,349 ) - 838 Income tax expense/(benefit) 332
352 147 831 (1,251 ) - (420 )
Operating net income $ 541 $ 575 $ 240 $ 1,356 ($98 ) - $
1,258 Operating net income per share: Basic $ 0.03 $
0.03 $ 0.01 $ 0.06 ($0.00 ) - $ 0.06 Diluted (1) $ 0.02 $ 0.03 $
0.01 $ 0.06 ($0.00 ) - $ 0.06 (1) In 2013 and the first
quarter of 2014, JMP Group issued restricted share units, or RSUs,
bearing non-forfeitable distribution equivalent rights. GAAP
requires RSUs with non-forfeitable distribution equivalent rights
to be included in the diluted share count (without applying the
treasury method). Management presents 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 was 21,241,149, equivalent to the weighted average number
of basic shares outstanding, due to the company’s net loss for the
period. Under GAAP, in a period of net loss, dilutive securities
are disregarded in the calculation of earnings per share.
A statement of JMP Group’s operating net income on a segment
basis for the nine months ended September 30, 2015, is set
forth below.
Nine Months Ended September 30, 2015
Corporate Net Broker- Asset Credit
Operating Corporate Elimin- JMP (in thousands, except per share
amounts) Dealer Mgmt. Mgmt. Platforms Income ations Group
Revenues: Investment banking $ 53,943 - - $ 53,943 - - $ 53,943
Brokerage 18,515 - - 18,515 - - 18,515 Asset management-related
fees - $ 15,497 $ 4,150 19,647 ($21 ) ($4,436 ) 15,190 Principal
transactions (1) 1,135 - - 1,135 4,585 - 5,720 Gain/(loss) on sale
and payoff of loans - - - - (1,054 ) - (1,054 ) Net dividend income
- - - - 709 - 709 Net interest income - - - - 9,221 - 9,221
Provision for loan losses - - - -
698 - 698 Adjusted net revenues
73,593 15,497 4,150 93,240 14,138 (4,436 ) 102,942 Expenses:
Non-interest expense/(income) 63,415 14,186
3,037 80,638 13,439 (4,436 ) 89,641
Operating income before taxes 10,178 1,311 1,113 12,602 699
- 13,301 Income tax expense/(benefit) 3,867
497 423 4,787 (2,725 ) - 2,062
Operating net income $ 6,311 $ 814 $ 690 $ 7,815 $ 3,424
- $ 11,239 Operating net income per
share: Basic $ 0.30 $ 0.04 $ 0.03 $ 0.37 $ 0.16 - $ 0.53 Diluted
(2) $ 0.28 $ 0.04 $ 0.03 $ 0.35 $ 0.15 - $ 0.50 (1) Revenues
of $1.1 million at broker-dealer segment represent net realized
investment gain on the exercise of warrants related to investment
banking activity. (2) In 2013 and the first quarter of 2014, JMP
Group issued restricted share units, or RSUs, bearing
non-forfeitable distribution equivalent rights. GAAP requires RSUs
with non-forfeitable distribution equivalent rights to be included
in the diluted share count (without applying the treasury method).
Management presents 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, 2015, was 22,863,767; given that denominator,
operating net income per diluted share would remain $0.49.
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, 2014, as filed with the U.S. Securities and Exchange Commission
on March 13, 2015, 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, 2014, and all
other periodic reports are available on JMP Group’s website at
www.jmpg.com and on the SEC’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 23, 2015. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
63202856.
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) Sept. 30, 2015 Dec. 31, 2014
Assets Cash and cash equivalents $ 62,582 $ 101,362
Restricted cash and deposits 76,432 67,102 Marketable securities
owned, at fair value 34,712 29,466 Other investments 73,908 208,947
Loans held for investment, net of allowance for loan losses 2,566
1,997
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
986,309 1,038,848 Cash collateral posted for total return swap
25,000 - Deferred tax assets 11,646 10,570 Other assets
41,679 57,900 Total assets $ 1,314,834 $ 1,516,192
Liabilities and Shareholders' Equity Liabilities: Marketable
securities sold, but not yet purchased, at fair value $ 14,602 $
15,048 Accrued compensation 24,054 54,739 Asset-backed securities
issued 959,762 1,001,137 Bond payable 94,300 94,300 Deferred tax
liability 19,969 19,161 Other liabilities 42,760
42,878 Total liabilities 1,155,447 1,227,263
Shareholders' Equity: Total JMP Group LLC shareholders' equity
131,373 132,597 Non-redeemable non-controlling interest
28,014 156,332 Total equity 159,387 288,929
Total liabilities and shareholders' equity $ 1,314,834 $ 1,516,192
JMP GROUP LLC Consolidated Statements of Operations
(Unaudited)
Quarter Ended Nine Months Ended (in thousands,
except per share amounts) Sept. 30, 2015 Sept. 30, 2014
Sept. 30, 2015 Sept. 30, 2014 Revenues: Investment
banking $ 11,918 $ 17,063 $ 53,943 $ 65,177 Brokerage 6,046 6,455
18,515 19,585 Asset management fees 6,963 9,630 16,346 30,032
Principal transactions (1,440 ) (4,276 ) 5,161 1,719 Gain/(loss) on
sale, payoff and mark-to-market of loans 30 (12 ) (1,680 ) (183 )
Net dividend income 263 242 710 739 Other income (279 )
1,192 523 1,564
Non-interest revenues 23,501 30,294
93,518 118,633 Interest income
12,675 9,973 38,253 27,773 Interest expense (7,523 )
(5,614 ) (22,197 ) (15,866 ) Net interest income
5,152 4,359 16,056
11,907 Provision for loan losses (563 )
(956 ) (75 ) (1,665 ) Total net revenues
28,090 33,697 109,499
128,875 Non-interest expenses: Compensation and
benefits 21,949 28,315 76,537 97,670 Administration 1,719 1,901
5,704 5,383 Brokerage, clearing and exchange fees 842 772 2,454
2,515 Travel and business development 1,101 890 3,334 2,721
Communications and technology 964 970 2,916 2,860 Occupancy 945 846
2,719 2,522 Professional fees 1,252 1,157 3,266 3,233 Depreciation
390 235 831 689 Other 465 236
1,693 778 Total non-interest expense
29,627 35,322 99,454
118,371 Net income before income tax expense (1,537 )
(1,625 ) 10,045 10,504 Income tax expense/(benefit) (343 )
1,460 3,793 5,606 Net
income (1,194 ) (3,085 ) 6,252 4,898
Less: Net income attributable to
non-redeemable non-controlling interests
1,797 (4,580 ) 5,309
(3,790 ) Net income attributable to JMP Group LLC ($2,991 )
$ 1,495 $ 943 $ 8,688 Net income
attributable to JMP Group LLC per share: Basic ($0.14 ) $ 0.07 $
0.04 $ 0.38 Diluted ($0.14 ) $ 0.06 $ 0.04 $ 0.37 Weighted
average common shares outstanding: Basic 21,241 21,686 21,230
21,739 Diluted 21,241 23,834 22,864 23,680
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151023005136/en/
Investor Relations ContactJMP Group LLCAndrew Palmer,
415)-835-8978apalmer@jmpg.comorMedia Relations ContactsDukas
Public RelationsSeth Linden, 212-704-7385seth@dukaspr.comZach
Leibowitz, 212-704-7385zach@dukaspr.com
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