JMP Group LLC
Jul 28, 2010

JMP Group Reports Second Quarter 2010 Financial Results

SAN FRANCISCO, Jul 28, 2010 (BUSINESS WIRE) -- JMP Group Inc. (NYSE:JMP), an investment banking and alternative asset management firm, reported financial results today for the quarter ended June 30, 2010.

"We were pleased with our overall operating results for the second quarter," said Joe Jolson, chairman and chief executive officer of JMP Group, "particularly in light of the increased industry headwinds in institutional brokerage and investment banking. JMP Securities' investment banking revenues were up sharply, and institutional brokerage revenues were flat compared to the prior quarter's levels. Harvest Capital Strategies had a respectable quarter, given the double-digit declines in the broad market indices, generating a weighted average return of 1.9% on its invested capital. JMP Credit had a record quarter thanks to materially improved liquidity in middle-market corporate credits, which spurred many existing borrowers to opportunistically refinance their debt prior to maturity. As has been the case for the past year, we have reinvested a portion of the unsustainably high profits from JMP Credit in growth initiatives at JMP Securities and, to a lesser extent, at Harvest Capital Strategies. We are hopeful that these investments will prove to be productive in 2011 and beyond."

Revenues

Investment Banking

Investment banking revenues were $10.6 million, an increase of 0.4% from $10.6 million for the second quarter of 2009. For the six months ended June 30, 2010, investment banking revenues were $16.1 million, an increase of 9.4% from $14.7 million for the six months ended June 30, 2009.

The company executed 22 investment banking transactions during the quarter, compared to 15 during the second quarter of 2009. Public equity underwriting revenues were $6.1 million, up from $4.4 million for the second quarter of 2009, as the company executed 15 public equity offerings, versus seven a year earlier. Private placement fee revenues amounted to $2.6 million, in line with $2.6 million for the second quarter of 2009, as the company executed four private placements, in keeping with four a year prior. Strategic advisory revenues totaled $2.0 million, down from $3.6 million for the second quarter of 2009, with the company acting as a strategic advisor on three completed transactions, versus four a year earlier.

Brokerage

Net brokerage revenues were $7.7 million, a decrease of 17.8% from $9.4 million for the second quarter of 2009. For the six months ended June 30, 2010, net brokerage revenues were $15.4 million, a decrease of 14.2% from $17.9 million for the six months ended June 30, 2009.

Asset Management

Asset management-related fee revenues were $3.4 million, a decrease of 26.6% from $4.7 million for the second quarter of 2009, including incentive fees of $0.9 million and $1.9 million, respectively. For the six months ended June 30, 2010, asset management-related fee revenues were $6.8 million, a decrease of 49.1% from $13.4 million for the six months ended June 30, 2009, including incentive fees of $1.5 million and $8.5 million, respectively. Asset management-related fee revenues include asset management fees as well as 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) reported in JMP Group's financial statements as other income. Fee revenues classified as other income were $0.3 million and $0.7 million for the second quarters of 2010 and 2009, respectively, and $0.8 million and $0.9 million for the six months ended June 30, 2010 and June 30, 2009, respectively.

Client assets under management at June 30, 2010 totaled $1.1 billion, including $578.3 million of funds managed by Harvest Capital Strategies and $483.0 million par value of loans and cash underlying the collateralized loan obligation managed by JMP Credit Corporation. Client assets under management totaled $1.1 billion at March 31, 2010 and $1.0 billion at June 30, 2009.

Principal Transactions

Principal transactions generated net revenues of $0.4 million, a decrease of 93.7% from $6.5 million for the second quarter of 2009. For the six months ended June 30, 2010, principal transactions generated net revenues of $1.8 million, a decrease of 80.5% from $9.4 million for the six months ended June 30, 2009. Principal transactions primarily include direct investments made by JMP Group as well as investments by the company in funds managed by Harvest Capital Strategies.

For the quarter, equity investments and investments by JMP Group in its hedge funds produced net realized and unrealized gains of $1.0 million, compared to net realized and unrealized gains of $4.4 million for the second quarter of 2009. In addition, an investment in publicly traded New York Mortgage Trust, Inc. produced an unrealized loss of $0.5 million, compared to an unrealized gain of $2.1 million for the second quarter of 2009.

Gain on Sales and Payoffs of Loans and Loan Loss Provision

JMP Credit Corporation realized gains of $15.8 million due to the sale or payoff of 21 of the loans in its portfolio, an increase of 225.4% from $4.8 million for the second quarter of 2009 due to the sale or payoff of six loans. For the six months ended June 30, 2010, realized gains amounted to $19.2 million as a result of the sale or payoff of 32 loans. At June 30, 2010, 44 loans with an aggregate par value of $271.7 million and an associated liquidity discount of $64.4 million remained from the portfolio acquired by JMP Credit in April 2009.

A loan loss provision of $0.2 million was recorded for the quarter as a general reserve with regard to performing loans at JMP Credit. For the second quarter of 2009, a loan loss provision of $3.3 million was recorded, $0.7 million of which was in connection with a loan held for investment by JMP Group and $2.5 million of which was with regard to impaired loans at JMP Credit.

At June 30, 2010, gross impaired loans declined 59.1% to $24.4 million, or 5.5% of gross loans outstanding, from $59.8 million, or 12.8% of gross loans outstanding, at March 31, 2010. With regard to impaired loans at June 30, 2010, discounts and reserves (including credit discounts, liquidity discounts and allowances for loan losses) totaled $22.2 million, or 90.9% of gross impaired loans outstanding. With regard to performing loans at June 30, 2010, discounts and reserves (including liquidity discounts, allowances for loan losses and deferred loan fees) totaled $67.4 million, or 15.9% of gross performing loans outstanding.

Net Interest and Net Dividend Income

Net interest income equaled $4.7 million, compared to $2.8 million for the second quarter of 2009, and net dividend income totaled $0.5 million, versus $0.7 million for the second quarter of 2009. For the six months ended June 30, 2010, net interest income was $8.0 million, compared to $3.0 million for the six months ended June 30, 2009, and net dividend income was $1.1 million, in line with $1.1 million for the six months ended June 30, 2009. The significant year-over-year differences in net interest income are due to unscheduled principal prepayments that enhanced the yield on loans at JMP Credit Corporation and produced $2.4 million and $2.7 million of net interest income for the quarter and six months ended June 30, 2010, respectively. Additionally, JMP Credit did not exist prior to April 2009.

Expenses

Compensation and Benefits

Compensation and benefits expense was $30.6 million, compared to $22.7 million for the second quarter of 2009. For the six months ended June 30, 2010, compensation and benefits expense was $46.1 million, compared to $41.5 million for the six months ended June 30, 2009. Of the amounts recorded for the quarter and six months ended June 30, 2010, non-cash compensation expense attributable to restricted stock units, or RSUs, granted in connection with JMP Group's May 2007 initial public offering was $1.2 million and $1.9 million, respectively, while such expense attributable to RSUs granted thereafter was $0.2 million and $0.4 million, respectively.

As a percentage of total net revenues, compensation and benefits expense was 71.4%, compared to 60.7% for the second quarter of 2009, and was 67.7% for the six months ended June 30, 2010, compared to 67.4% for the six months ended June 30, 2009. Pro forma compensation and benefits expense (which excludes the cost of RSU grants) was 68.1% of total net revenues, compared to 57.3% for the second quarter of 2009, and was 64.3% for the six months ended June 30, 2010, compared to 63.1% for the six months ended June 30, 2009.

Non-Compensation Expense

Non-compensation expense was $7.1 million, compared to $6.4 million for the second quarter of 2009. For the six months ended June 30, 2010, non-compensation expense was $13.4 million, compared to $11.7 million for the six months ended June 30, 2009. As a percentage of total net revenues, non-compensation expense was 16.7% for the quarter, compared to 17.0% for the second quarter of 2009, and 19.7% for the six months ended June 30, 2010, compared to 18.9% for the six months ended June 30, 2009.

Share Repurchase Activity

During the quarter ended June 30, 2010, JMP Group repurchased a total of 938,458 shares of its common stock at an average price of $6.88 per share, or $6.5 million in aggregate.

Book Value per Share

At June 30, 2010, JMP Group's tangible book value per share was $5.65, compared to $5.68 at March 31, 2010 and $5.35 at June 30, 2009. Adjusting book value to reflect the net liquidity discount on JMP Credit's loan portfolio and asset-backed securities issued, JMP Group's adjusted tangible book value per share at June 30, 2010 would have been $4.85, as indicated by the reconciliation below.

(in thousands, except per share amounts) June 30, 2010 Mar. 31, 2010 June 30, 2009
Total JMP Group stockholders' equity $ 121,276 $ 123,230 $ 111,004
Goodwill and intangible assets - - -
Tangible stockholders' equity 121,276 123,230 111,004
Liquidity discount on loans 64,410 84,771 115,875
Liquidity discount on asset-backed securities issued (93,866 ) (100,787 ) (121,015 )
Net liquidity discount (29,456 ) (16,016 ) (5,140 )
Income tax benefit (assumed tax rate of 42%) 12,372 6,727 2,159
Net after-tax liquidity discount (17,084 ) (9,289 ) (2,981 )
Adjusted tangible stockholders' equity $ 104,192 $ 113,941 $ 108,023
Adjusted tangible book value per share $ 4.85 $ 5.26 $ 5.21
Basic shares outstanding 21,482 21,676 20,750
Operating ROATE* 16.6 % 10.7 % 12.3 %
* Return on adjusted tangible equity = operating net income / average adjusted tangible stockholders' equity.

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. Additionally, company management believes that this presentation enables 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 expenses or gains that JMP Group expects to continue to recognize; the adjustment of these items should not be construed as an inference that these expenses or gains are unusual, infrequent or non-recurring. Therefore, company management believes that both JMP Group's GAAP measures of its 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.

Operating Net Income

Operating net income is a non-GAAP financial measure that (i) reverses stock-based compensation expense related to equity awards granted both at the time of JMP Group's May 2007 initial public offering and thereafter, (ii) excludes the net amortization of discounts on loans held and asset-backed securities issued by JMP Credit Corporation, (iii) excludes net unrealized gains and losses on strategic equity investments, and (iv) assumes an effective tax rate of 42%. This methodology differs from that employed by JMP Group in recent prior periods, when operating net income was defined as excluding only stock-based compensation expense related to the company's IPO. As now calculated, in particular, operating net income adjusts for:

A reconciliation of JMP Group's net income to the company's operating net income for the quarter and six months ended June 30, 2010 and for comparable prior periods is set forth below.

Three Months Ended
(in thousands, except per share amounts) June 30, 2010 Mar. 31, 2010
Net income attributable to JMP Group Inc. $ 2,185 $ 1,718
Add back:
Income tax expense 2,134 1,388
Income before taxes 4,319 3,106
Add back/(subtract):
Compensation expense - IPO-related RSUs 1,221 676
Compensation expense - Post-IPO RSUs 191 226
Net amortization of liquidity discounts on loans 1,696 1,496

Loss/(gain) on strategic equity investments

548 (212 )
Gain on bargain purchase - -
Operating income before taxes 7,975 5,292
Income tax expense (assumed tax rate of 42%) 3,350 2,223
Operating net income $ 4,625 $ 3,069
Operating net income per share:
Basic $ 0.21 $ 0.14
Diluted $ 0.21 $ 0.14
Weighted average shares outstanding:
Basic 21,654 21,612
Diluted 22,295 22,484
Three Months Ended
(in thousands, except per share amounts) Dec. 31, 2009 Sept. 30, 2009 June 30, 2009 Mar. 31, 2009
Net income attributable to JMP Group Inc. $ 3,521 $ 2,969 $ 4,286 $ 34
Add back:
Income tax expense 1,171 2,879 3,560 52
Income before taxes 4,692 5,848 7,846 86
Add back/(subtract):
Compensation expense - IPO-related RSUs 691 708 803 959
Compensation expense - Post-IPO RSUs 5,164 543 466 409
Net amortization of liquidity discounts on loans 789 161 1,180 -

Loss/(gain) on strategic equity investments

43 (2,723 ) (3,354 ) 84
Gain on bargain purchase - - (1,179 ) -
Operating income before taxes 11,379 4,537 5,762 1,538
Income tax expense (assumed tax rate of 42%) 4,779 1,906 2,420 646
Operating net income $ 6,600 $ 2,631 $ 3,342 $ 892
Operating net income per share:
Basic $ 0.31 $ 0.13 $ 0.16 $ 0.04
Diluted $ 0.30 $ 0.12 $ 0.16 $ 0.04
Weighted average shares outstanding:
Basic 21,258 20,755 20,643 20,500
Diluted 22,228 22,015 21,323 20,702
Six Months Ended
(in thousands, except per share amounts) June 30, 2010 June 30, 2009
Net income attributable to JMP Group Inc. $ 3,903 $ 4,320
Add back:
Income tax expense 3,522 3,612
Income before taxes 7,425 7,932
Add back/(subtract):
Compensation expense - IPO-related RSUs 1,896 1,761
Compensation expense - Post-IPO RSUs 418 875
Net amortization of liquidity discounts on loans 3,192 1,180

Loss/(gain) on strategic equity investments

335 (3,269 )
Gain on bargain purchase - (1,179 )
Operating income before taxes 13,266 7,300
Income tax expense (assumed tax rate of 42%) 5,572 3,066
Operating net income $ 7,694 $ 4,234
Operating net income per share:
Basic $ 0.36 $ 0.21
Diluted $ 0.34 $ 0.20
Weighted average shares outstanding:
Basic 21,633 20,572
Diluted 22,378 21,167

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 or including certain items that may not be representative of the company's core operating results or business outlook. 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 periods 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 stemming from sales of or prepayments on, or losses stemming from defaults on, loans underlying the company's collateralized loan obligation; 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. Further, JMP Group's compensation expense is generally based upon revenues and can fluctuate materially in any particular quarter depending upon the amount and sort of revenue recognized as well as other factors. The amount of compensation and benefits expense recognized in any particular quarter may not be indicative of such expense in a future period. As a result, the company suggests that 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 contains 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. Forward-looking statements include statements about the company's expectations, 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. JMP Group'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, 2009 as filed with the Securities and Exchange Commission on March 9, 2010 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, 2009 and all other periodic reports are available on JMP Group's website at http://www.jmpg.com and on the Securities and Exchange Commission's website at http://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 11:00 a.m. EDT on Wednesday, July 28, 2010. To participate in the call, dial 800-895-1549 (domestic) or 785-424-1057 (international). The conference identification code is "7Q1101088."

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 http://investor.jmpg.com. The Internet broadcast will be archived and will remain available on the website for future replay.

About JMP Group

JMP Group Inc. is a full-service investment banking and alternative asset management firm that provides investment banking, sales and trading, and equity research services to corporate and institutional clients and alternative asset management products to institutional and high-net-worth investors. JMP Group operates through three subsidiaries, JMP Securities, Harvest Capital Strategies and JMP Credit Corporation. For more information, visit www.jmpg.com.

JMP GROUP INC.

Consolidated Statements of Financial Condition

(Unaudited)

(in thousands) June 30, 2010 Dec. 31, 2009
Assets
Cash and cash equivalents $ 42,598 $ 75,680
Restricted cash and deposits and receivable from clearing broker 50,031 38,237
Marketable securities owned, at fair value 15,136 5,899
Other investments 57,171 59,190
Loans held for investment, net of allowance for loan losses 1,692 1,592

Loans collateralizing asset-backed securities issued, net of purchase discounts and allowance for loan losses

357,786 327,967
Deferred tax assets 41,994 51,499
Other assets 14,428 14,657
Total assets $ 580,836 $ 574,721
Liabilities and Stockholders' Equity
Liabilities:
Accrued compensation $ 16,279 $ 43,026
Asset-backed securities issued, net of purchase discounts 337,138 326,632
Note payable 13,177 9,045
Deferred tax liability 42,516 48,220
Other liabilities 40,185 22,147
Total liabilities 449,295 449,070
Stockholders' Equity:
Total JMP Group Inc. stockholders' equity 121,276 120,635
Noncontrolling interest 10,265 5,016
Total equity 131,541 125,651
Total liabilities and equity $ 580,836 $ 574,721

JMP GROUP INC.

Consolidated Statements of Operations

(Unaudited)

Three Months Ended Six Months Ended
(in thousands, except per share amounts) June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009
Revenues:
Investment banking $ 10,635 $ 10,598 $ 16,104 $ 14,713
Brokerage 7,690 9,358 15,360 17,897
Asset management fees 3,142 4,033 6,033 12,499
Principal transactions 411 6,533 1,833 9,423
Gain on sale and payoff of loans 15,762 4,844 19,242 4,844
Gain on repurchase of asset-backed securities issued - 108 - 108
Gain on bargain purchase - 1,179 - 1,179
Net dividend income 499 651 1,115 1,084
Other income 305 660 801 928
Non-interest revenues 38,444 37,964 60,488 62,675
Interest income 13,003 11,667 24,581 11,958
Interest expense (8,310 ) (8,899 ) (16,550 ) (8,980 )
Net interest income 4,693 2,768 8,031 2,978
Provision for loan losses (291 ) (3,257 ) (455 ) (3,982 )
Total net revenues 42,846 37,475 68,064 61,671
Non-interest expenses:
Compensation and benefits 30,592 22,740 46,112 41,541
Administration 1,974 1,322 2,995 2,443
Brokerage, clearing and exchange fees 1,223 1,490 2,574 2,740
Travel and business development 1,001 716 1,921 1,053
Communications and technology 1,073 955 2,146 1,818
Occupancy 671 597 1,322 1,178
Professional fees 813 928 1,788 1,884
Depreciation 169 207 337 403
Other 214 159 344 163
Total non-interest expenses 37,730 29,114 59,539 53,223
Income before income tax expense 5,116 8,361 8,525 8,448
Income tax expense 2,133 3,560 3,522 3,612
Net income 2,983 4,801 5,003 4,836
Less: Net income attributable to noncontrolling interest 798 515 1,100 516
Net income attributable to JMP Group Inc. $ 2,185 $ 4,286 $ 3,903 $ 4,320
Net income attributable to JMP Group Inc. per share:
Basic $ 0.10 $ 0.21 $ 0.18 $ 0.21
Diluted $ 0.10 $ 0.20 $ 0.17 $ 0.20
Weighted average common shares outstanding:
Basic 21,654 20,643 21,633 20,572
Diluted 22,295 21,323 22,378 21,167

SOURCE: JMP Group Inc.

JMP Group Inc.
Investor Relations & Media Contact
Andrew Palmer, 415-835-8978
apalmer@jmpg.com

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