JMP Group LLC (NYSE:JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter and full fiscal year ended December 31, 2015.
- Operating net income was $1.0 million,
or $0.04 per diluted share, a decrease of 77.7% from
$4.6 million, or $0.20 per share, for the fourth quarter of
2014. For the year ended December 31, 2015, operating net income
was $12.3 million, or $0.55 per share, a decrease of 25.3% from
$16.4 million, or $0.72 per share, for the year ended December
31, 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 $29.7
million, a decrease of 28.4% from $41.4 million for the fourth
quarter of 2014. For the year ended December 31, 2015, adjusted net
revenues were $132.6 million, a decrease of 24.2% from $174.9
million for the year ended December 31, 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 $1.2
million, or $0.05 per diluted share, compared to net income of $4.7
million, or $0.20 per share, for the fourth quarter of 2014. For
the year ended December 31, 2015, the GAAP net loss was $0.2
million, or $0.01 per share, compared to net income of $13.4
million, or $0.57 per share, for the year ended December 31,
2014.
- Total net revenues on a GAAP basis were
$31.7 million and $141.2 million for the quarter and year ended
December 31, 2015, respectively, compared to $53.6 million and
$182.5 million for the quarter and year ended December 31, 2014,
respectively.
“2015 ended up being a much more difficult year than we had
envisioned, due to the downturn in the U.S. capital markets, as
evidenced by the Russell 2000’s 25% decline from its 52-week high
in late June,” said Chairman and Chief Executive Officer Joe
Jolson. “Consequently, in the second half of 2015, equity capital
markets fees fell by 46% year-over-year across Wall Street and by
29% for JMP Securities, which experienced a sharp decrease in
revenues and an operating loss of $0.14 per share for the fourth
quarter, including a compensation charge of $0.12 per share after
tax.
“Thanks to our diversified business model and to our conversion
to a publicly traded partnership structure in 2015, we were able to
more than offset the disappointing results at JMP Securities for
the quarter both with earnings from our asset management
subsidiaries and with solid net investment income, to post positive
operating results for JMP Group. While the U.S. capital markets
have continued their downward trajectory thus far in 2016, which
could impact our near-term results, we are experienced at managing
through down cycles and at taking advantage of opportunities
presented by them, which could allow JMP Group to emerge in a
stronger competitive position when conditions normalize. Our senior
management team and board of directors are well aligned with
shareholders and have continued to increase their personal
investment in the company’s stock through open market purchases,
bringing their combined ownership to more than 43% at year-end,
compared to approximately 27% at the time of our May 2007 IPO.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $16.2 million, a decrease of 29.9% from $23.2 million
for the fourth quarter of 2014. The broker-dealer segment’s
operating margin on adjusted net revenues was negative, at -32.1%,
compared to a positive 10.8% for the fourth quarter of 2014.
Excluding a compensation charge of $4.4 million, or $0.12 per share
after tax, JMP Securities would have lost $0.02 per share on an
operating basis for the fourth quarter of 2015, with an adjusted
operating margin of -5.1%.
At Harvest Capital Strategies, the asset management segment,
adjusted net revenues of $8.2 million decreased 31.3% from $11.9
million for the fourth quarter of 2014. JMP Group earned 4.1% on
its capital invested in hedge funds managed by Harvest Capital
Strategies for the quarter, compared to gains of 1.9% and 3.6% for
the HFRI Equity Hedge (Total) and the Russell 2000 indices,
respectively.
At JMP Credit Advisors, the corporate credit management segment,
adjusted net revenues were less than $1.4 million, a decrease
of 4.0% from more than $1.4 million for the fourth quarter of
2014.
A summary of JMP Group’s operating net income per share by
segment for the quarter and year ended December 31, 2015, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended ($ as shown) Dec. 31, 2015
Sept. 30, 2015 Dec. 31, 2014 Dec. 31, 2015
Dec. 31, 2014 Broker-dealer ($0.14 ) $0.02 $0.07 $0.14 $0.48 Asset
management 0.04 0.03 0.04 0.08
0.10 Corporate credit management 0.01 0.01
(0.00 ) 0.04 0.02 Operating platform
EPS (0.10 ) 0.06 0.11 0.25 0.60 Net corporate income 0.14
(0.00 ) 0.09 0.30 0.13
Operating EPS (diluted) $0.04 $0.06 $0.20
$0.55 $0.72
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 $9.2 million, a decrease of
42.3% from $15.9 million for the fourth quarter of 2014. For the
year ended December 31, 2015, investment banking revenues were
$63.1 million, a decrease of 22.1% from $81.1 million for the
year ended December 31, 2014.
A summary of the company’s investment banking revenues and
transaction counts for the quarter and year ended December 31,
2015, and for comparable prior periods is set forth below.
Quarter Ended Year Ended Dec. 31, 2015 Sept.
30, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014 ($
in thousands) Count Revenues Count Revenues Count
Revenues Count Revenues Count Revenues Public
equity 11 $4,682 11 $9,876 27 $10,714 83 $46,086 120 $54,786
Debt and convertible securities
2 1,021 3 190 5 1,670 16 5,570 20 4,801
Private capital markets and other
1 (79 ) - 290 2 1,685 2 832 4 2,833
Strategic advisory
2 3,549 3 1,562 2 1,824 11 10,628 17 18,650
Total
16 $9,173 17 $11,918 36 $15,893 112 $63,116 161 $81,070
Brokerage
Net brokerage revenues were $7.1 million, a decrease of 3.7%
from $7.3 million for the fourth quarter of 2014. For the year
ended December 31, 2015, net brokerage revenues were $25.6 million,
a decrease of 5.0% from $26.9 million for the year ended December
31, 2014.
Asset Management
Asset management-related fee revenues were $8.1 million, a
decrease of 31.6% from $11.8 million for the fourth quarter of
2014. For the year ended December 31, 2015, asset
management-related fee revenues were $23.3 million, a decrease
of 46.5% from $43.5 million for the year ended December 31, 2014,
when incentive fees totaled $26.5 million, compared to $8.2 million
for 2015. For more information about asset management-related fee
revenues, see the section below titled “Non-GAAP Financial
Measures.”
Client assets under management at December 31, 2015, totaled
$2.3 billion, including more than $1.1 billion of funds
managed by Harvest Capital Strategies and HCAP Advisors and more
than $1.1 billion par value of loans and cash managed by JMP
Credit Advisors. Client assets under management were $2.3 billion
at September 30, 2015, and $2.1 billion at December 31, 2014.
Including sponsored funds in which Harvest Capital Strategies owns
an economic interest, client assets under management totaled $2.8
billion at December 31, 2015.
At December 31, 2015, private capital, including corporate
credit, small business lending, venture capital and real
estate-related advisory services, represented 67.5% of client
assets under management, including sponsored funds.
Principal Transactions
Principal transactions generated a net realized and unrealized
gain of $2.2 million, compared to $12.1 million for the fourth
quarter of 2014. For the year ended December 31, 2015, principal
transactions generated a net realized and unrealized gain of $7.4
million, compared to $13.8 million for the year ended December 31,
2014. In 2014, JMP Group consolidated venture capital funds Harvest
Growth Capital and Harvest Growth Capital II, according to GAAP
standards that have since changed; excluding non-controlling
interests in those funds, principal transactions revenues would
have been $1.2 million and $5.5 million for the quarter and year
ended December 31, 2014, respectively. 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 2.4%, compared to 4.4% for the fourth quarter of
2014.
At December 31, 2015, discounts and reserves (including
liquidity discounts, allowances for loan losses and deferred loan
fees) equaled $14.4 million, or 1.5% of gross performing loans
outstanding at JMP Credit. At December 31, 2014, such discounts and
reserves equaled $11.5 million, or 1.1% 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 $1.0 million,
and at December 31, 2015, general loan loss reserves equaled 0.5%
of gross performing loans at JMP Credit.
Net Interest Income
Net interest income was $5.0 million and $21.1 million for the
quarter and year ended December 31, 2015, respectively, compared to
$4.7 million and $16.6 million for the quarter and year ended
December 31, 2014, respectively.
Expenses
Compensation and Benefits
Compensation and benefits expense was $27.0 million, compared to
$25.9 million for the fourth 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 77.2% of adjusted net
revenues, compared to 63.2% for the fourth quarter of 2014. Further
excluding compensation expense related to hedge fund incentive fees
and any strategic initiatives, the compensation ratio was 74.4%,
compared to 60.0% for the fourth quarter of 2014. Without the
aforementioned compensation charge of $4.4 million at JMP
Securities, the adjusted compensation ratio of 74.4% would have
been 61.1% for the fourth quarter of 2015.
For the year ended December 31, 2015, compensation and benefits
expense was $103.6 million, compared to $123.6 million for the year
ended December 31, 2014. With regard to annually awarded
compensation, compensation and benefits expense was 68.8% of
adjusted net revenues, equivalent to 68.8% for the year ended
December 31, 2014. Further excluding compensation expense related
to hedge fund incentive fees and any strategic initiatives, the
compensation ratio was 67.4%, compared to 63.4% for the year ended
December 31, 2014.
For more information about compensation ratios, see the section
below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $7.8 million, compared to $8.2
million for the fourth quarter of 2014. For the year ended December
31, 2015, non-compensation expense was $30.7 million, compared to
$28.9 million for the year ended December 31, 2014.
Book Value per Share
At December 31, 2015, JMP Group’s book value per share was
$5.77, as set forth below.
(in thousands, except per share amounts) Dec. 31, 2015
Sept. 30, 2015 Dec. 31, 2014 Shareholders'
equity $125,112 $131,373 $132,597 Book value per share $5.77
$6.19 $6.25 Basic shares outstanding 21,681 21,211 21,216
Quarterly operating ROE (1) 3.2% 3.8% 13.5% LTM operating
ROE (1) 9.3% 11.8% 12.4% (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 December 31, 2015, JMP Group
repurchased 724,421 shares of its common stock at an aggregate
price of $4.1 million, or $5.69 per share. At year-end, 282,030
shares remained eligible for repurchase under the company's
repurchase authorization. After repurchasing a further 146,400
shares, the company’s board of directors subsequently authorized
the repurchase of an additional 1,000,000 shares, bringing the
total available to be repurchased to 1,135,630 shares as of January
12, 2016, as previously announced.
Personnel
At December 31, 2015, the company had 247 full-time employees,
compared to 245 at September 30, 2015, and 235 at December 31,
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 real
estate-related depreciation expense, (v) 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), (vi)
excludes non-controlling interests in other sources of revenue that
are consolidated according to GAAP, and (vii) 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;
- property depreciation expense resulting
from a commercial real estate investment;
- 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 year ended December 31, 2015, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2015
Sept. 30, 2015 Dec. 31, 2014 Dec. 31, 2015
Dec. 31, 2014 Revenues: Non-interest revenues $27,755 $23,501
$47,665 $121,273 $166,298 Net interest income 5,005 5,152 4,737
21,061 16,644 Loan loss (provision)/reversal (1,015 ) (563 ) 1,229
(1,090 ) (436 ) Total net revenues 31,745 28,090 53,631
141,244 182,506 Add back/(subtract):
General loan loss provision/(reversal) –
collateralized loan obligations
602 327 (487 ) 1,144 1,351
Net unrealized loss – strategic equity
investments and warrants
128 1,479 1,073 776 2,567
Property depreciation – commercial real
estate
102 - - 102 -
Non-controlling interests – Harvest Growth
Capital funds
- - (10,675 ) - (6,972 )
Non-controlling interests – other
revenues
(2,518 ) (2,539 ) (1,805 ) (10,175 ) (3,198 )
Unrealized mark-to-market (gain) –
deferred compensation
(390 ) (292 ) (321 ) (479 ) (1,379 ) Adjusted net revenues
$29,669 $27,065 $41,416 $132,612
$174,875
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 year ended December 31, 2015, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended
(in thousands)
Dec. 31, 2015 Sept. 30, 2015 Dec. 31, 2014 Dec. 31,
2015 Dec. 31, 2014 Base management fees: Fees reported as
asset management fees $4,172 $4,131 $3,576 $15,432 $13,193
Fees earned at Harvest Growth Capital and
Harvest Growth Capital II
- - 282 - 1,308
Less: Non-controlling interest in HCAP
Advisors
(362 ) (350 ) (267 ) (1,332 ) (912 ) Total base management fees
3,810 3,781 3,591 14,100 13,589
Incentive fees: Fees reported as asset management fees 4,274
2,832 7,013 9,360 27,428
Less: Non-controlling interest in HCAP
Advisors
(420 ) (267 ) (558 ) (1,132 ) (884 ) Total incentive fees 3,854
2,565 6,455 8,228 26,544
Other fee income: Total fundraising and other fees 418 (279
) 1,768 944 3,332
Asset management-related fee revenues
$8,082 $6,067 $11,814 $23,272 $43,465
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 (i) reverses net unrealized gains and losses on
strategic equity investments and warrants and on investments
related to deferred compensation and (ii) excludes real
estate-related depreciation expense, 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 year ended December 31, 2015, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended (in thousands) Dec. 31, 2015
Sept. 30, 2015 Dec. 31, 2014 Dec. 31, 2015
Dec. 31, 2014 Hedge fund investments $3,145 ($219) $1,366 $4,922
$7,112
Investment in Harvest Capital Credit
Corporation
(128) (1,479) (1,129) 128 (2,546)
Investment in Harvest Growth Capital
funds
(20) (284) 438 (62) 255 Other principal investments (749) 542 491
2,421 710
Principal transaction revenues excluding
non-controlling interests
2,248 (1,440) 1,166 7,409 5,531
Non-controlling interests – Harvest Growth
Capital funds
- - 10,963 - 8,317 Total principal transaction revenues 2,248
(1,440) 12,129 7,409 13,848 Add back/(subtract):
Unrealized mark-to-market loss – strategic
equity investments and warrants
128 1,479 1,073 776 2,567
Unrealized mark-to-market (gain) – net
deferred compensation
(389) (292) (320) (478) (1,378)
Property depreciation – commercial real
estate
102 - - 102 -
Non-controlling interests – Harvest Growth
Capital funds
- - (10,963) - (8,317) Total operating adjustments (159) 1,187
(10,210) 400 (7,128)
Total adjusted principal transaction
revenues
$2,089 ($253) $1,919 $7,809 $6,720
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 excluding 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 year ended December 31, 2015, and for comparable prior periods
is set forth below.
Quarter Ended Year Ended ($ in thousands) Dec. 31,
2015 Sept. 30, 2015 Dec. 31, 2014 Dec. 31, 2015
Dec. 31, 2014
Compensation Ratio
Adjusted net revenues $29,669 $27,065 $41,416
$132,612 $174,875 Compensation and benefits
$27,023 $21,949 $25,910 $103,560 $123,580 Subtract/(add
back): Compensation expense – stock options and SARs 417 329 509
2,235 1,917 Compensation expense – RSUs 588 236 1,181 1,606 3,744
Compensation expense – net deferred
compensation
2,433 1,801 (2,004 ) 6,972 (4,483 )
Unrealized mark-to-market gain – deferred
compensation
390 292 321 479 1,379 Compensation expense – non-controlling
interest 280 254 (289 ) 1,063 792
Adjusted compensation and benefits 22,915 19,037
26,192 91,205 120,231 Subtract:
Compensation expense – strategic initiatives - - (850
) - 760
Adjusted compensation and benefits,
excluding strategic initiatives
$22,915 $19,037 $27,042 $91,205
$119,471
Adjusted ratio of compensation expense to
revenues
77.2 % 70.3 % 63.2 % 68.8 % 68.8 %
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives
77.2 % 70.3 % 65.3 % 68.8 % 68.3 % Compensation Ratio
Excluding Hedge Fund Incentive Fees Adjusted net revenues $29,669
$27,065 $41,416 $132,612 $174,875 Subtract:
Compensation expense – hedge fund
incentive fees
3,318 2,165 5,477 5,580 23,296
Adjusted net revenues, excluding hedge
fund incentive fees
$26,351 $24,900 $35,939 $127,032
$151,579
Adjusted compensation and benefits,
excluding strategic initiatives
$22,915 $19,037 $27,042 $91,205 $119,471 Subtract:
Compensation expense – hedge fund
incentive fees
3,318 2,165 5,477 5,580 23,296
Adjusted compensation and benefits,
excluding strategic initiatives and hedge fund incentive fees
$19,597 $16,872 $21,565 $85,625 $96,175
Adjusted ratio of compensation expense to
revenues, excluding strategic initiatives and hedge fund incentive
fees (1)
74.4 % 67.8 % 60.0 % 67.4 % 63.4 % (1) Excluding a
compensation charge of $4.4 million at JMP Securities, the adjusted
compensation ratio of 74.4% for the quarter ended December 31,
2015, would have been 61.1%.
Company management has utilized compensation ratios, adjusted in
the manners described above, to assess JMP Group’s personnel
expenses as they relate to its revenues for the periods presented.
Management believes that adjusted compensation ratios provide
useful information by including or excluding certain expenses as a
means of representing the company’s ongoing personnel costs
resulting from its core business activities. Management also
believes that compensation ratios are useful measures because they
allow and facilitate meaningful comparisons of the company’s
personnel expenses in a given period to those in prior and future
periods.
Operating Net Income
Operating net income is a non-GAAP financial measure that (i)
reverses compensation expense related to 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, (iv) excludes real estate-related depreciation expense,
and (v) 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;
- property depreciation expense resulting
from a commercial real estate investment; 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 year ended December 31, 2015, and for
comparable prior periods is set forth below.
Quarter Ended Year Ended Dec. 31, 2015 Sept.
30, 2015 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2014
Net (loss)/income attributable to JMP Group ($1,151 ) ($2,991 )
$4,664 ($208 ) $13,352 Add back: Income tax
(benefit)/expense (3,572 ) (343 ) 2,409 221 8,015
(Loss)/income before taxes (4,723 ) (3,334 ) 7,073 13 21,367
Add back/(subtract):
Compensation expense – stock options and
SARs
417 329 509 2,235 1,917 Compensation expense – RSUs 588 236 1,181
1,606 3,744
Compensation expense – net deferred
compensation
2,433 1,801 (2,004 ) 6,972 (4,483 )
General loan loss provision/(reversal) –
collateralized loan obligations
602 327 (487 ) 1,144 1,351
Unrealized mark-to-market loss – strategic
equity investments and warrants
128 1,479 1,073 776 2,567
Property depreciation – commercial real
estate
102 - - 102 - Operating
(loss)/income before taxes (453 ) 838 7,345 12,848 26,463
Income tax (benefit)/expense (1,469 ) (420 ) 2,792 593
10,057 Operating net income $1,016 $1,258
$4,553 $12,255 $16,406 Operating
net income per share: Basic $0.05 $0.06 $0.22 $0.58 $0.76 Diluted
(1) $0.04 $0.06 $0.20 $0.55 $0.72 Weighted average shares
outstanding: Basic 21,257 21,241 20,716 21,237 21,481 Diluted (1)
22,588 22,665 22,502 22,428 22,749 (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 and year ended December 31, 2015, was 21,257,403 and
21,237,008, respectively, equivalent to the weighted average number
of basic shares outstanding, due to the company’s net loss for each
period. Under GAAP, in a period of net loss, dilutive securities
are disregarded in the calculation of earnings per share.
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 presentation of 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 real estate-related
depreciation expense, (iv) excludes non-controlling interests in
other sources of revenue that are consolidated according to GAAP,
and (v) 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 December 31, 2015, is set forth
below.
Quarter Ended December 31, 2015
(in thousands, except per share
amounts)
Broker-Dealer
AssetMgmt.
CorporateCreditMgmt.
OperatingPlatforms
NetCorporateIncome
Elimin-ations
JMPGroup
Revenues: Investment banking $9,173 - - $9,173 - - $9,173 Brokerage
7,062 - - 7,062 - - 7,062 Asset management-related fees - $8,191
$1,367 9,558 - ($1,476 ) 8,082 Principal transactions - - - -
$2,089 - 2,089 Gain on sale and payoff of loans - - - - 177 - 177
Net dividend income - - - - 331 - 331 Net interest income - - - -
2,753 - 2,753 Reversal of loan losses - - - - 2
- 2 Adjusted net revenues 16,235 8,191 1,367
25,793 5,352 (1,476 ) 29,669 Expenses: Non-interest
expense/(income) 21,450 6,773 1,101 29,324 2,274
(1,476 ) 30,122 Operating (loss)/income before taxes
(5,215 ) 1,418 266 (3,531 ) 3,078 - (453 ) Income tax
(benefit)/expense (1,981 ) 539 101 (1,341 ) (128 ) - (1,469
) Operating net (loss)/income ($3,234 ) $879 $165 ($2,190 ) $3,206
- $1,016 Operating net (loss)/income
per share: Basic ($0.15 ) $0.04 $0.01 ($0.10 ) $0.15 - $0.05
Diluted (1) ($0.14 ) $0.04 $0.01 ($0.10 ) $0.14 - $0.04 (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 21,257,403, 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 year ended December 31, 2015, is set forth below.
Year Ended December 31, 2015
(in thousands, except per share
amounts)
Broker-Dealer
AssetMgmt.
CorporateCreditMgmt.
OperatingPlatforms
NetCorporateIncome
Elimin-ations
JMPGroup
Revenues: Investment banking $63,116 - - $63,116 - - $63,116
Brokerage 25,577 - - 25,577 - - 25,577 Asset management-related
fees - $23,688 $5,517 29,205 ($21 ) ($5,912 ) 23,272 Principal
transactions (1) 1,135 - - 1,135 6,674 - 7,809 (Loss) on sale and
payoff of loans - - - - (877 ) - (877 ) Net dividend income - - - -
1,040 - 1,040 Net interest income - - - - 11,975 - 11,975 Reversal
of loan losses - - - - 700 - 700 Adjusted net
revenues 89,828 23,688 5,517 119,033 19,491 (5,912 ) 132,612
Expenses: Non-interest expense/(income) 84,865 20,959 4,138 109,962
15,714 (5,912 ) 119,764 Operating income before taxes
4,963 2,729 1,379 9,071 3,777 - 12,848 Income tax
expense/(benefit) 1,886 1,036 524 3,446 (2,853 ) - 593
Operating net income $3,077 $1,693 $855 $5,625 $6,630
- $12,255 Operating net income per share:
Basic $0.14 $0.08 $0.04 $0.26 $0.31 - $0.58 Diluted (2) $0.14 $0.08
$0.04 $0.25 $0.30 - $0.55 (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 year ended December 31, 2015, was 21,237,008,
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.
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, February 12, 2016. To
participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
44494609.
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, 2015 Dec. 31, 2014
Assets Cash and cash equivalents $68,551 $101,362 Restricted
cash and deposits 66,107 67,102 Marketable securities owned, at
fair value 28,493 29,466 Other investments 68,859 208,947 Loans
held for investment, net of allowance for loan losses 2,595 1,997
Loans collateralizing asset-backed
securities issued, net of allowance for loan losses
969,665 1,038,848 Cash collateral posted for total return swap
25,000 - Deferred tax assets 8,315 10,570 Other assets 39,915
57,900 Total assets $1,277,500 $1,516,192 Liabilities and
Shareholders' Equity Liabilities: Marketable securities
sold, but not yet purchased, at fair value $13,284 $15,048 Accrued
compensation 34,987 54,739 Asset-backed securities issued 934,392
1,001,137 Bond payable 94,300 94,300 Deferred tax liability 14,693
19,161 Other liabilities 32,950 42,878 Total liabilities 1,124,606
1,227,263 Shareholders' Equity: Total JMP Group LLC
shareholders' equity 125,112 132,597 Non-redeemable non-controlling
interest 27,782 156,332 Total equity 152,894 288,929 Total
liabilities and shareholders' equity $1,277,500 $1,516,192
JMP GROUP LLC
Consolidated Statements of
Operations
(Unaudited)
Quarter Ended Year Ended (in thousands, except per
share amounts) Dec. 31, 2015 Dec. 31, 2014 Dec. 31, 2015
Dec. 31, 2014 Revenues: Investment banking $9,173
$15,893 $63,116 $81,070 Brokerage 7,062 7,331 25,577 26,916 Asset
management fees 8,445 10,588 24,791 40,620 Principal transactions
2,248 12,129 7,409 13,848 Gain/(loss) on sale, payoff and
mark-to-market of loans 76 (309 ) (1,604 ) (492 ) Net dividend
income 331 262 1,041 1,001 Other income 420 1,771 943
3,335 Non-interest revenues 27,755 47,665
121,273 166,298 Interest income 12,548
12,269 50,801 40,042 Interest expense (7,543 ) (7,532 ) (29,740 )
(23,398 ) Net interest income 5,005 4,737 21,061
16,644 (Provision)/reversal for loan losses
(1,015 ) 1,229 (1,090 ) (436 ) Total net revenues 31,745
53,631 141,244 182,506
Non-interest expenses: Compensation and benefits 27,023 25,910
103,560 123,580 Administration 1,525 1,927 7,229 7,310 Brokerage,
clearing and exchange fees 924 789 3,378 3,304 Travel and business
development 1,412 1,402 4,746 4,123 Communications and technology
1,013 983 3,929 3,843 Occupancy 938 815 3,657 3,337 Professional
fees 1,047 1,505 4,313 4,738 Depreciation 346 242 1,177 931 Other
550 564 2,243 1,342 Total non-interest
expense 34,778 34,137 134,232 152,508
Net income before income tax expense (3,033 ) 19,494 7,012
29,998 Income tax (benefit)/expense (3,572 ) 2,409 221
8,015 Net income 539 17,085 6,791 21,983
Less: Net income attributable to
non-redeemable non-controlling interests
1,690 12,421 6,999 8,631 Net
(loss)/income attributable to JMP Group ($1,151 ) $4,664
($208 ) $13,352 Net (loss)/income attributable to JMP
Group per share: Basic ($0.05 ) $0.21 ($0.01 ) $0.59 Diluted ($0.05
) $0.20 ($0.01 ) $0.57 Weighted average common shares
outstanding: Basic 21,257 20,716 21,237 21,481 Diluted 21,257
23,120 21,237 23,542
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160212005127/en/
Investor Relations ContactJMP Group LLCAndrew Palmer,
415-835-8978apalmer@jmpg.comorMedia Relations ContactsDukas
Linden Public Relations, Inc.Seth Linden,
212-704-7385seth@dlpr.comZach Leibowitz,
212-704-7385zach@dlpr.com
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