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, 2016.
- Net income attributable to JMP Group
under generally accepted accounting principles, or GAAP, was $0.7
million, or $0.03 per diluted share, compared to a net loss of $3.0
million, or $0.14 per share, for the third quarter of 2015. For the
nine months ended September 30, 2016, GAAP net income was
$2.1 million, or $0.10 per share, compared to $0.9 million, or
$0.04 per share, for the nine months ended September 30,
2015.
- Total net revenues on a GAAP basis were
$30.7 million and $99.0 million for the quarter and nine months
ended September 30, 2016, respectively, compared to $28.1 million
and $109.5 million for the quarter and nine months ended September
30, 2015, respectively.
- Operating net income was $2.9 million,
or $0.13 per diluted share, an increase of 130.2% from
$1.3 million, or $0.06 per share, for the third quarter of
2015. For the nine months ended September 30, 2016, operating
net income was $7.6 million, or $0.35 per share, a decrease of
32.2% from $11.2 million, or $0.50 per share, for the nine
months ended September 30, 2015. 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 $29.6
million, an increase of 9.5% from $27.1 million for the third
quarter of 2015. For the nine months ended September 30, 2016,
adjusted net revenues were $94.7 million, a decrease of 8.0% from
$102.9 million for the nine months ended September 30, 2015.
For more information about adjusted net revenues, including a
reconciliation to net revenues, see the section below titled
“Non-GAAP Financial Measures.”
“JMP Group produced better-than-expected operating net income of
$0.13 per share for the third quarter, helped again by strong
returns on our principal investment activities,” said Chairman and
Chief Executive Officer Joe Jolson. “JMP Securities returned to
profitability with net income of $0.02 per share, as equity capital
markets fee revenues improved from depressed second-quarter levels.
The year-over-year growth of our M&A revenues continues to
impress, increasing by more than 200% thus far in 2016 and already
setting a new annual record with one quarter still to go. Our focus
on broadening our M&A efforts since ECM activity was at peak
levels during 2013 and 2014 has enabled JMP Securities to manage
through the current down cycle and invest in growth initiatives
while still maintaining modest profitability this year.
“Going into 2016, we had anticipated the need to fund our cash
distributions to shareholders solely through our investing
activities. In the third quarter, we benefitted from improved
corporate loan pricing and from a return of roughly 7% on our real
estate investments. Net corporate income for the quarter was $0.11
per share, including a contribution of $0.18 per share from the
publicly traded partnership that doubled our cash distribution of
$0.09 per share. As a result, we were able to cover our current
cash distributions and grow our adjusted book value per share,
which increased to $5.94 at period-end.
“Shortly after quarter-end, Workspace Property Trust closed a
materially accretive acquisition of nearly $1 billion of
high-quality suburban office and flex properties. As a founding
investor in Workspace, we expect to benefit from an estimated 30%
increase in its adjusted book value per share as well as higher
returns on our $10 million of invested capital and our ownership
interest in the manager going forward. At this juncture, without
pro forma financial statements, our best estimate is that the
transaction could add upwards of $0.05 to our fourth quarter
operating EPS on a one-time basis.”
Segment Results of Operations
At JMP Securities, the broker-dealer segment, adjusted net
revenues were $20.1 million, an increase of 11.7% from $18.0
million for the third quarter of 2015. JMP Securities’ operating
margin on adjusted net revenues was 3.7%, compared to 4.9% for the
third quarter of 2015. For the nine months ended September 30,
2016, the margin was 1.7%, compared to 13.8% for the nine months
ended September 30, 2015.
The asset management segment produced adjusted net revenues of
$5.3 million, a decrease of 30.4% from $7.6 million for third
quarter of 2015. JMP Group earned 1.9% for the quarter on the
capital invested by the company in hedge funds managed by Harvest
Capital Strategies, compared to gains of 4.7% and 9.1% by the HFRI
Equity Hedge (Total) and Russell 2000 indices, respectively. JMP
Group’s net return on invested capital managed by JMP Credit
Advisors was 5.8%, compared to 4.5% for the third quarter of
2015.
A summary of JMP Group’s operating net income per share by
segment for the quarter and nine months ended September 30, 2016,
and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended ($ as shown) Sept.
30, 2016 June 30, 2016 Sept. 30, 2015 Sept. 30, 2016
Sept. 30, 2015 Broker-dealer $ 0.02 ($0.06 ) $ 0.02 $ 0.03 $
0.28 Asset management 0.00 0.01 $ 0.04
0.04 0.07 Operating platform EPS 0.02 (0.05 ) 0.06 0.06 0.35
Net corporate income 0.11 0.17 0.00
0.29 0.16 Operating EPS (diluted) $ 0.13 $ 0.12
$ 0.06 $ 0.35 $ 0.50
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 $15.0 million, an increase of
26.3% from $11.9 million for the third quarter of 2015. For the
nine months ended September 30, 2016, investment banking revenues
were $41.7 million, a decrease of 22.7% from $53.9 million for
the nine months ended September 30, 2015.
A summary of the company’s investment banking revenues and
transaction counts for the quarter and nine months ended September
30, 2016, and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended Sept. 30, 2016
June 30, 2016 Sept. 30, 2015 Sept. 30, 2016 Sept. 30,
2015 ($ in thousands) Count Revenues Count Revenues
Count Revenues Count Revenues Count Revenues
Public equity 12 $ 6,243 8 $ 2,750 11 $ 9,876 30 $ 15,217 72 $
41,404 Debt and convertible securities 3 1,355 7 769 3 190 10 2,174
14 4,549 Private capital markets and other 2 1,531 1 600 - 290 3
2,136 1 911 Strategic advisory 6 5,919 5 4,256 3
1,562 15 22,192 9 7,079 Total 23 $ 15,048 21 $
8,375 17 $ 11,918 58 $ 41,719 96 $ 53,943
Brokerage
Net brokerage revenues were $5.0 million, a decrease of 17.1%
from $6.0 million for the third quarter of 2015. For the nine
months ended September 30, 2016, net brokerage revenues were $16.9
million, a decrease of 8.6% from $18.5 million for the nine months
ended September 30, 2015.
Asset Management
Asset management fees were $4.0 million, compared to $7.0
million for the third quarter of 2015. For the nine months ended
September 30, 2016, asset management fees were
$19.0 million, compared to $16.3 million for the nine
months ended September 30, 2015.
Asset management-related fee revenues reflect asset management
fees net of non-controlling interests in HCAP Advisors as well as
certain fee revenues reported in the company’s financial statements
as other income. Asset management-related fee revenues were $3.9
million, a decrease of 36.1% from $6.1 million for the third
quarter of 2015. For the nine months ended September 30, 2016,
asset management-related fee revenues were $17.8 million, an
increase of 17.1% from $15.2 million for the nine months ended
September 30, 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, 2016, totaled
$2.3 billion, including $1.2 billion of funds managed by Harvest
Capital Strategies, JMP Asset Management and HCAP Advisors and $1.1
billion par value of loans and cash managed by JMP Credit Advisors.
Client assets under management were also $2.3 billion at
June 30, 2016, and at September 30, 2015. Including sponsored
funds in which JMP Group owns an economic interest, client assets
under management totaled $2.7 billion at September 30, 2016.
At September 30, 2016, private capital, including corporate
credit, small business lending, venture capital and real
estate-related investments, represented 69.7% of client assets
under management, including sponsored funds.
Principal Transactions
Principal transactions generated a net realized and unrealized
gain of $2.8 million, compared to a net realized and unrealized
loss of $1.4 million for the third quarter of 2015. For the
nine months ended September 30, 2016, principal transactions
generated a net realized and unrealized gain of $10.3 million,
compared to $5.2 million for the nine months ended September 30,
2015.
Adjusted principal transaction revenues reverse certain
unrealized market-to-market gains or losses, including those on JMP
Group’s investment in Harvest Capital Credit Corporation, as well
as depreciation and amortization expenses related to real estate
investment properties. Adjusted principal transaction revenues were
$3.3 million, compared to losses totaling $0.3 million for the
third quarter of 2015. For the nine months ended September 30,
2016, adjusted principal transaction revenues were $12.4 million,
an increase of 117.0% from $5.7 million for the nine months ended
September 30, 2015. For more information about adjusted principal
transaction revenues, including a reconciliation to principal
transaction revenues, see the section below titled “Non-GAAP
Financial Measures.”
Net Interest Income
Net interest income was $3.3 million and $11.7 million for the
quarter and nine months ended September 30, 2016,
respectively, compared to $5.2 million and $16.1 million for the
quarter and nine months ended September 30, 2015, respectively. The
year-over-year declines were due to lower average loan balances
during 2016 and to a lower net interest margin resulting from an
increase in three-month Libor and the continued repayment of the
AAA-rated debt issued by JMP Credit Advisors CLO I.
Collateralized Loan Obligations
At September 30, 2016, discounts and reserves (including
liquidity discounts, allowances for loan losses and deferred loan
fees) equaled $13.6 million, or 1.6% of gross performing loans
managed by JMP Credit Advisors. At September 30, 2015, such
discounts and reserves equaled $13.5 million, or 1.3% of gross
performing loans outstanding. With regard to impaired loans,
discounts and reserves (including credit discounts, allowances for
loan losses, and deferred loan fees) equaled $0.9 million, or 30.0%
of gross impaired loans outstanding, at September 30, 2016. There
were no impaired loans at September 30, 2015.
There was no net loan loss provision related to collateralized
loan obligations for the quarter. Instead, there was a reversal of
the general loan loss reserve in the amount of $0.1 million,
primarily due to a decrease in the loan portfolio balance. At
September 30, 2016, general loan loss reserves equaled 0.63%
of gross performing loans managed by JMP Credit Advisors.
Expenses
Compensation and Benefits
Compensation and benefits expense was $22.2 million, compared to
$21.9 million for the third quarter of 2015. 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 68.4% of adjusted net
revenues, compared to 70.3% for the third quarter of 2015. Further
excluding compensation expense related to hedge fund incentive
fees, the compensation ratio remains 68.4% for the third quarter of
2016 but decreases to 67.8% for the third quarter of 2015.
For the nine months ended September 30, 2016, compensation and
benefits expense was $70.3 million, compared to $76.5 million for
the nine months ended September 30, 2015. With regard to annually
awarded compensation, compensation and benefits expense was 70.9%
of adjusted net revenues, compared to 66.3% for the nine months
ended September 30, 2015. Further excluding compensation expense
related to hedge fund incentive fees, the compensation ratio was
69.2%, compared to 65.6% for the nine months ended September 30,
2016.
For more information about compensation ratios, see the section
below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $7.5 million and $23.3 million for
the quarter and nine months ended September 30, 2016,
respectively, compared to $7.7 million and $22.9 million for the
quarter and nine months ended September 30, 2015, respectively.
Share Repurchase Activity
During the quarter ended September 30, 2016, JMP Group
repurchased 29,348 shares of its common stock at an aggregate cost
of $0.2 million, or $5.38 per share. At quarter-end, 1.2 million
shares remained eligible for repurchase under the company’s
repurchase authorization.
Personnel
At September 30, 2016, the company had 228 full-time employees,
compared to 233 at June 30, 2016, and 245 at September 30,
2015.
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)
reverses the general loan loss provision taken with regard to
certain CLOs, (ii) excludes real estate-related depreciation and
amortization expense, (iii) reverses net unrealized gains or losses
on strategic equity investments and warrants, (iv) reverses net
unrealized mark-to-market gains or losses on investments related to
deferred compensation, and (v) excludes non-controlling interests
in various sources of revenue that are consolidated according to
GAAP. In particular, adjusted net revenue adjusts for:
- 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;
- depreciation and amortization expense
resulting from commercial real estate investments;
- unrealized mark-to-market gains or
losses on the company’s strategic equity investments as well as
certain warrant positions;
- 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; and
- non-controlling interests in revenues
generated by consolidated entities, including HCAP Advisors and
CLOs managed by JMP Credit Advisors.
A reconciliation of JMP Group’s net revenues to its adjusted net
revenues for the quarter and nine months ended September 30, 2016,
and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2016 June 30, 2016 Sept. 30, 2015 Sept. 30, 2016
Sept. 30, 2015 Revenues: Non-interest revenues $
27,311 $ 26,162 $ 23,501 $ 88,233 $ 93,518 Net interest income
3,260 4,014 5,152 11,700 16,056
Reversal of/(provision for) loan
losses
104 (453 ) (563 ) (980 )
(75 ) Total net revenues 30,675 29,723 28,090 98,953 109,499
Add back/(subtract): General loan loss (reversal)/provision –
collateralized loan obligations (76 ) (440 ) 327 (109 ) 542
Depreciation and amortization – commercial real estate 123 2,070 -
2,523 - Net unrealized loss/(gain) – strategic equity investments
and warrants 435 (435 ) 1,479 (329 ) 648 Net unrealized
mark-to-market loss/(gain) – deferred compensation 21 (50 ) (292 )
(106 ) (90 ) Non-controlling interests (1,529 )
(2,465 ) (2,539 ) (6,264 ) (7,657 )
Adjusted net revenues $ 29,649 $ 28,403 $ 27,065
$ 94,668 $ 102,942
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 (i) excludes the non-controlling interest in asset
management subsidiary HCAP Advisors and (ii) includes 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.
A statement of JMP Group’s asset management-related fee revenues
for the quarter and nine months ended September 30, 2016, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2016 June 30, 2016 Sept. 30, 2015 Sept. 30, 2016
Sept. 30, 2015 Base management fees: Fees reported as
asset management fees $ 4,160 $ 4,139 $ 4,131 $ 12,434 $ 11,260
Less: Non-controlling interest in HCAP Advisors (355 )
(362 ) (350 ) (1,081 ) (969 ) Total
base management fees 3,805 3,777
3,781 11,353 10,291
Incentive fees: Fees reported as asset management fees (116 ) 1,448
2,832 6,523 5,087 Less: Non-controlling interest in HCAP Advisors
(73 ) (287 ) (267 ) (623 ) (711
) Total incentive fees (189 ) 1,161
2,565 5,900 4,376 Other
fee income: Total fundraising and other fees 261
46 (279 ) 534 523
Asset management-related fee revenues $ 3,877 $ 4,984
$ 6,067 $ 17,787 $ 15,190
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 and amortization 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 nine months ended September 30, 2016, and for
comparable prior periods is set forth below.
Quarter Ended Nine Months Ended (in thousands) Sept.
30, 2016 June 30, 2016 Sept. 30, 2015 Sept. 30, 2016
Sept. 30, 2015 Hedge fund investments $ 939 ($266 )
($238 ) $ 73 $ 1,759
Investment in Harvest Capital Credit
Corporation
(435 ) 435 (1,479 ) 314 256
Investment in Harvest Growth Capital
funds
(21 ) (156 ) (284 ) (184 ) (42 ) Other principal investments
2,281 6,619 561 10,122
3,188 Total principal transaction revenues
2,764 6,632 (1,440 ) 10,325
5,161 Add back/(subtract):
Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants
435 (435 ) 1,479 (329 ) 648 Unrealized mark-to-market loss/(gain) –
net deferred compensation 20 (51 ) (292 ) (107 ) (89 ) Depreciation
and amortization – commercial real estate 123
2,070 - 2,523 - Total
operating adjustments 578 1,584 1,187
2,087 559 Total adjusted
principal transaction revenues $ 3,342 $ 8,216 ($253
) $ 12,412 $ 5,720
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). In
addition, the company presents a further adjusted compensation
ratio that excludes any compensation related to incentive fees
generated by hedge funds, a majority of which is passed through to
the funds’ investment teams if earned.
A statement of JMP Group’s compensation ratio for the quarter
and nine months ended September 30, 2016, and for comparable
prior periods is set forth below.
Quarter Ended Nine Months Ended ($ in thousands)
Sept. 30, 2016 June 30, 2016 Sept. 30, 2015 Sept 30,
2016 Sept 30, 2015 Compensation Ratio Adjusted
net revenues $ 29,649 $ 28,403 $ 27,065 $
94,668 $ 102,942 Compensation and benefits $
22,167 $ 20,681 $ 21,949 $ 70,273 $ 76,537 Subtract/(add back):
Compensation expense – stock options and SARs 274 281 329 770 1,818
Compensation expense – RSUs 309 (48 ) 236 513 1,018 Compensation
expense – deferred compensation 1,126 435 1,801 1,046 4,540
Unrealized mark-to-market (loss)/gain – deferred compensation (21 )
50 292 106 90 Compensation expense – non-controlling interest
207 271 253 756
782 Adjusted compensation and benefits $
20,272 $ 19,692 $ 19,038 $ 67,082 $
68,289 Adjusted ratio of compensation expense to
revenues 68.4 % 69.3 % 70.3 % 70.9 % 66.3 % Compensation
Ratio Excluding Hedge Fund Incentive Fees Adjusted net
revenues $ 29,649 $ 28,403 $ 27,065 $ 94,668 $ 102,942 Subtract:
Compensation expense – hedge fund incentive fees -
879 2,165 5,107
2,263 Adjusted net revenues, excluding hedge fund incentive
fees $ 29,649 $ 27,524 $ 24,900 $ 89,561
$ 100,679 Adjusted compensation and benefits $
20,272 $ 19,692 $ 19,038 $ 67,082 $ 68,289 Subtract: Compensation
expense – hedge fund incentive fees - 879
2,165 5,107 2,263
Adjusted compensation and benefits, excluding hedge fund incentive
fees $ 20,272 $ 18,813 $ 16,873 $ 61,975
$ 66,026
Adjusted ratio of compensation expense to
revenues, excluding hedge fund incentive fees
68.4 % 68.4 % 67.8 % 69.2 % 65.6 %
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) excludes real
estate-related depreciation and amortization expense, (iv) reverses
net unrealized gains and losses on strategic equity investments and
warrants, 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 in a given period but
recognized as a GAAP expense over the subsequent three years less
(b) GAAP expense recognized in a given period but already reflected
in the operating income of a prior period; the purpose of this
adjustment is to fully reflect compensation awarded in a given
year, notwithstanding the timing of GAAP expense;
- 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;
- depreciation and amortization expense
resulting from commercial real estate investments;
- 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, 2016,
and for comparable prior periods is set forth below.
Quarter Ended Nine Months Ended Sept. 30, 2016
June 30, 2016 Sept. 30, 2015 Sept. 30, 2016 Sept. 30,
2015 Net income/(loss) attributable to JMP Group $ 661 ($327
) ($2,991 ) $ 2,137 $ 943 Add back: Income tax
(benefit)/expense (597 ) (246 ) (343 )
(793 ) 3,793 Income/(loss) before taxes 64 (573 ) (3,334 )
1,344 4,736 Add back/(subtract): Compensation expense –
stock options and SARs 274 281 329 770 1,818 Compensation expense –
RSUs 309 (48 ) 236 513 1,018 Compensation expense – net deferred
compensation 1,126 435 1,801 1,046 4,539 General loan loss
(reversal)/provision – collateralized loan obligations (76 ) (440 )
327 (109 ) 542 Depreciation and amortization – commercial real
estate 123 2,070 - 2,523 - Unrealized mark-to-market loss/(gain) –
strategic equity investments and warrants 435
(435 ) 1,479 (329 ) 648 Operating
income before taxes 2,255 1,290 838 5,758 13,301 Income tax
(benefit)/expense (641 ) (1,278 ) (420 )
(1,864 ) 2,062 Operating net income $ 2,896 $
2,568 $ 1,258 $ 7,622 $ 11,239
Operating net income per share: Basic $ 0.14 $ 0.12 $ 0.06 $ 0.36 $
0.53 Diluted (1) $ 0.13 $ 0.12 $ 0.06 $ 0.35 $ 0.50 Weighted
average shares outstanding: Basic 20,946 21,058 21,241 21,117
21,230 Diluted (1) 21,844 21,703 22,665 21,687 22,438
(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 nine months ended September 30,
2016, was 21,900,893 and 21,796,338, 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 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 and amortization expense, (iv) excludes
non-controlling interests in various 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, based on the company’s best estimation of the
subsidiary’s average rate of taxation over the long term.
A statement of JMP Group’s operating net income on a segment
basis for the quarter ended September 30, 2016, is set forth
below.
Quarter Ended September 30, 2016
(in thousands, except per share
amounts)
Broker-Dealer AssetMgmt. OperatingPlatforms
NetCorporateIncome Elimin-ations JMPGroup
Revenues:
Investment banking $ 15,048 - $ 15,048 - - $ 15,048 Brokerage 5,015
- 5,015 - - 5,015 Asset management-related fees 3 $ 5,296 5,299 -
($1,422 ) 3,877 Principal transactions - - - 3,342 - 3,342 Gain on
sale and payoff of loans - - - 32 - 32 Net dividend income - - -
261 - 261 Net interest income - - - 2,057 - 2,057 Reversal of loan
losses - - - 17 -
17 Adjusted net revenues 20,066 5,296 25,362 5,709 (1,422 )
29,649
Expenses:
Non-interest expense/(income) 19,332 5,176
24,508 4,308 (1,422 ) 27,394 Operating
income before taxes 734 120 854 1,401 - 2,255 Income tax
expense/(benefit) 279 46 325 (966 ) -
(641 ) Operating net income $ 455 $ 74 $ 529 $ 2,367
- $ 2,896 Operating net income per
share: Basic $ 0.02 $ 0.00 $ 0.03 $ 0.11 - $ 0.14 Diluted (1) $
0.02 $ 0.00 $ 0.02 $ 0.11 - $ 0.13 (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 ended September 30, 2016, was 21,900,893.
A statement of JMP Group’s operating net income on a segment
basis for the nine months ended September 30, 2016, is set
forth below.
Nine Months Ended September 30, 2016
(in thousands, except per share
amounts)
Broker-Dealer AssetMgmt. OperatingPlatforms
NetCorporateIncome Elimin-ations JMPGroup
Revenues: Investment banking $ 41,719 - $ 41,719
-
- $ 41,719 Brokerage 16,921 - 16,921 - - 16,921 Asset
management-related fees 3 $ 21,718 21,721 $ 123 ($4,057 ) 17,787
Principal transactions - - - 12,412 - 12,412
Gain/(loss) on sale and payoff of
loans
- - - (635 ) - (635 ) Net dividend income - - - 828 - 828 Net
interest income - - - 6,431 - 6,431 Provision for loan losses
- - - (795 ) - (795 )
Adjusted net revenues 58,643 21,718 80,361 18,364 (4,057 ) 94,668
Expenses: Non-interest expense/(income) 57,637
20,473 78,110 14,857 (4,057 ) 88,910
Operating income before taxes 1,006 1,245 2,251 3,507 -
5,758 Income tax expense/(benefit) 383 473
856 (2,720 ) - (1,864 ) Operating net
income $ 623 $ 772 $ 1,395 $ 6,227 - $ 7,622
Operating net income per share: Basic $ 0.03 $ 0.04 $ 0.07 $
0.29 - $ 0.36 Diluted (1) $ 0.03 $ 0.04 $ 0.06 $ 0.29 - $ 0.35 (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, 2016, was
21,796,338.
Book Value per Share
At September 30, 2016, JMP Group’s book value per share was
$5.82. Adding back accumulated real-estate related depreciation and
amortization expense resulting from commercial real estate
investments reflects the reversal of these expenses in the
calculation of adjusted net revenues, adjusted principal
transaction revenues and operating net income and results in an
adjusted book value per share of $5.94, as set forth below.
(in thousands, except per share amounts) Sept. 30, 2016
June 30, 2016 Sept. 30, 2015 Shareholders'
equity $ 121,801 $ 120,379 $ 131,373
Accumulated depreciation and amortization 2,586
2,463 - Adjusted shareholders' equity $
124,387 $ 122,842 $ 131,373 Book value
per share $ 5.82 $ 5.75 $ 6.19 Adjusted book
value per share $ 5.94 $ 5.87 $ 6.19
Basic shares outstanding 20,939 20,945 21,211 Quarterly
operating ROE (1) 9.6 % 8.5 % 3.8 % LTM operating ROE (1) 7.0 % 5.5
% 11.8 % Quarterly adjusted operating ROE (1) 9.4 % 8.4 %
3.8 % LTM adjusted operating ROE (1) 6.9 % 5.5 % 11.8 % (1)
Operating return on equity (ROE) equals operating net income
divided by average shareholders’ equity. Adjusted operating ROE
equals operating net income divided by average adjusted
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.”
Company management utilizes adjusted book value on a total and
per share basis, adjusted in the manner described above, as an
additional means of evaluating JMP Group’s efforts to retain
earnings and build shareholders’ equity. Management believes that
adjusted book value per share provides useful information by
excluding non-cash expenses related to real estate investments that
otherwise obscure the company’s increases and decreases in net
worth as a result of its core business activities. Management also
believes that adjusted book value allows for a better comparison of
shareholder’s equity and the return on that equity in a given
period to those in prior and future periods.
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, 2015, as filed with the U.S. Securities and Exchange Commission
on March 12, 2016, 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, 2015, 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 Wednesday, October 26, 2016.
To participate in the call, dial (888) 566-6060 (domestic) or (973)
200-3100 (international). The conference identification number is
53367715.
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, 2016 Dec. 31, 2015
Assets Cash and cash equivalents $ 88,668 $ 68,551
Restricted cash and deposits 124,046 52,572 Marketable securities
owned, at fair value 21,553 28,493 Other investments 41,340 68,859
Loans held for investment, net of allowance for loan losses 2,153
2,595 Loans collateralizing asset-backed securities issued, net of
allowance for loan losses 823,694 969,665 Cash collateral posted
for total return swap 25,240 25,000 Deferred tax assets 11,059
8,315 Other assets 29,226 46,808 Total assets $
1,166,979 $ 1,270,858 Liabilities and Shareholders' Equity
Liabilities: Marketable securities sold, but not yet
purchased, at fair value $ 8,886 $ 13,284 Accrued compensation
23,161 39,470 Asset-backed securities issued, net of issuance costs
857,444 930,224 Bond payable, net of issuance costs 91,680 91,825
Deferred tax liability 5,192 14,693 Other liabilities 42,547
28,468 Total liabilities 1,028,910 1,117,964
Shareholders' Equity: Total JMP Group LLC shareholders'
equity 121,801 125,112 Non-redeemable non-controlling interest
16,268 27,782 Total equity 138,069
152,894 Total liabilities and shareholders' equity $ 1,166,979 $
1,270,858
JMP GROUP LLC
Consolidated Statements of
Operations
(Unaudited)
Quarter Ended Nine Months Ended (in thousands, except
per share amounts) Sept. 30, 2016 Sept. 30, 2015 Sept. 30,
2016 Sept. 30, 2015 Revenues: Investment banking $
15,048 $ 11,918 $ 41,719 $ 53,943 Brokerage 5,015 6,046 16,921
18,515 Asset management fees 4,044 6,963 18,958 16,346 Principal
transactions 2,764 (1,440 ) 10,326 5,161 (Loss)/gain on sale,
payoff and mark-to-market of loans (52 ) 30 (961 ) (1,680 ) Net
dividend income 230 263 736 710 Other income 262
(279 ) 534 523 Non-interest
revenues 27,311 23,501 88,233
93,518 Interest income 11,472 12,675
35,997 38,253 Interest expense (8,212 ) (7,523 )
(24,297 ) (22,197 ) Net interest income 3,260
5,152 11,700 16,056
Reversal of/(provision for) loan losses 104
(563 ) (980 ) (75 ) Total net revenues
30,675 28,090 98,953
109,499 Non-interest expenses: Compensation
and benefits 22,167 21,949 70,273 76,537 Administration 1,808 1,719
5,640 5,704 Brokerage, clearing and exchange fees 734 842 2,308
2,454 Travel and business development 1,019 1,101 3,548 3,334
Communications and technology 1,033 964 3,093 2,916 Occupancy 987
945 2,853 2,719 Professional fees 1,119 1,252 3,245 3,266
Depreciation 312 390 968 831 Other 491 465
1,652 1,693 Total non-interest
expense 29,670 29,627 93,580
99,454
Net income/(loss) before income tax
expense
1,005 (1,537 ) 5,373 10,045 Income tax (benefit)/expense
(597 ) (343 ) (793 ) 3,793
Net income/(loss)
1,602 (1,194 ) 6,166 6,252 Less: Net income attributable to
non-redeemable non-controlling interest 941
1,797 4,029 5,309
Net income/(loss) attributable to JMP
Group
$ 661 ($2,991 ) $ 2,137 $ 943
Net income/(loss) attributable to JMP
Group per share:
Basic $ 0.03 ($0.14 ) $ 0.10 $ 0.04 Diluted $ 0.03 ($0.14 ) $ 0.10
$ 0.04 Weighted average common shares outstanding: Basic
20,946 21,241 21,117 21,230 Diluted 21,901 21,241 21,796 22,864
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161025006537/en/
Investor Relations ContactJMP Group LLCAndrew Palmer,
415-835-8978apalmer@jmpg.comorMedia Relations ContactsDukas
Linden Public Relations, Inc.Seth Linden,
212-704-7385seth@dlpr.comBen Jaffe, 212-704-7385ben@dlpr.com
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