JMP Group LLC
Oct 23, 2013

JMP Group Reports Third Quarter 2013 Financial Results

SAN FRANCISCO--(BUSINESS WIRE)-- JMP Group Inc. (NYSE: JMP), an investment banking and alternative asset management firm, reported financial results today for the quarter and nine months ended September 30, 2013.

"I am proud to report that JMP Securities had the best third quarter in our history, driven by a 57% year-over-year increase in investment banking revenues and positive operating margin leverage," said Chairman and Chief Executive Officer Joe Jolson. "The fact that productivity was broadly diversified across our four industry verticals and by product line demonstrates the rapidly growing value of our franchise. Having invested heavily to organically grow JMP Securities over the past four years, we are pleased to see such strong positive momentum. Excluding net investment income and corporate expenses, JMP Group's operating platforms earned $0.10 per share in the quarter, compared to $0.03 per share a year ago. For the first nine months of the year, platform earnings were $0.26 per share, or twice last year's level."

Segment Results of Operations

At JMP Securities, adjusted net revenues excluding net investment income (which consists of principal transactions, net dividend income and net interest income) were $24.9 million, an increase of 41.4% from $17.6 million for the third quarter of 2012, as a result of very strong investment banking results. JMP Securities' operating margins on adjusted net revenues were 14.7% and 14.3% for the quarter and nine months ended September 30, 2013, respectively, comparing favorably to 9.2% for the full year of 2012.

At Harvest Capital Strategies, adjusted net revenues of $6.0 million, excluding net investment income, increased 25.4% from $4.8 million for the third quarter of 2012. JMP Group's return on the capital it had invested in hedge funds managed by Harvest Capital Strategies was 0.3% for the quarter and 4.5% for the nine months ended September 30, 2013.

At JMP Credit, adjusted net revenues totaled $5.6 million, an increase of 9.2% from $5.1 million for the third quarter of 2012. The net gain on acquired loans was $0.1 million, compared to $0.5 million for the third quarter of 2012.

A summary of JMP Group's operating net income per share by segment for the quarter and nine months ended September 30, 2013 and for comparable prior periods is set forth below.

                           
 
Quarter Ended Nine Months Ended
($ as shown) Sept. 30, 2013   June 30, 2013   Sept. 30, 2012   Sept. 30, 2013   Sept. 30, 2012
 
JMP Securities $ 0.10 $ 0.13 $ 0.03 $ 0.28 $ 0.13
Harvest Capital Strategies 0.02 (0.01 ) 0.02 0.04 0.10
JMP Credit 0.09 0.13 0.14 0.38 0.43
Corporate   (0.09 )   (0.10 )   (0.06 )   (0.27 )   (0.20 )
 

Operating EPS (diluted)

$ 0.12   $ 0.15   $ 0.13   $ 0.43   $ 0.46  

For more information on segment reporting; adjusted net revenues, including a reconciliation to net revenues; and operating net income, including a reconciliation to net income, please see the section below titled "Non-GAAP Financial Measures."

Composition of Revenues

Investment Banking

Investment banking revenues were $19.1 million, an increase of 56.6% from $12.2 million for the third quarter of 2012. For the nine months ended September 30, 2013, investment banking revenues were a record $52.3 million, an increase of 37.6% from $38.0 million for the nine months ended September 30, 2012.

A summary of the company's investment banking revenues and transaction counts for the quarter and nine months ended September 30, 2013 and for comparable prior periods is set forth below.

                                                 
 
Quarter Ended Nine Months Ended
Sept. 30, 2013 June 30, 2013 Sept. 30, 2012 Sept. 30, 2013 Sept. 30, 2012
($ in thousands) Count Revenues   Count Revenues Count Revenues Count Revenues Count Revenues
 
Public equity 27 $ 10,822 37 $ 9,517 28 $ 9,297 97 $ 29,253 67 $ 25,050
Debt and convertible securities
5 3,495 8 4,890 3 293 23 10,033 13 2,393
Private capital markets and other
2 1,534 2 2,830 2 989 4 4,509 7 4,236
Strategic advisory 4   3,286 4   3,820 3   1,639 9   8,506 9   6,331
 
Total 38 $ 19,137 51 $ 21,057 36 $ 12,218 133 $ 52,301 96 $ 38,010

Brokerage

Net brokerage revenues were $5.8 million, an increase of 7.1% from $5.4 million for the third quarter of 2012. For the nine months ended September 30, 2013, net brokerage revenues were $17.9 million, an increase of 10.1% from $16.3 million for the nine months ended September 30, 2012.

Asset Management

Asset management fees and other related revenues were $6.0 million, an increase of 26.8% from $4.7 million for the third quarter of 2012. For the nine months ended September 30, 2013, such fees and revenues were $18.0 million, an increase of 16.1% from $15.5 million for the nine months ended September 30, 2012. For more information on asset management-related fee revenues, please see the section below titled "Non-GAAP Financial Measures."

Client assets under management at September 30, 2013 totaled $1.6 billion, including $865.4 million of funds managed by Harvest Capital Strategies and HCAP Advisors and $777.7 million par value of loans and cash underlying the two collateralized loan obligations managed by JMP Credit Advisors. Client assets under management were $1.6 billion at June 30, 2013 and $1.2 billion at September 30, 2012. Including sponsored funds, client assets under management totaled $1.8 billion at September 30, 2013, compared to $1.8 billion at June 30, 2013 and $1.7 billion at September 30, 2012.

At September 30, 2013, private capital, including corporate credit, small business lending, venture capital and REIT advisory services, represented 62.0% of client assets under management, including sponsored funds.

Principal Transactions

Principal transactions generated net realized and unrealized gains of $0.6 million and $4.8 million for the quarter and nine months ended September 30, 2013, respectively, compared to net realized and unrealized losses of $2.0 million and net realized and unrealized gains of $12.3 million for the quarter and nine months ended September 30, 2012, respectively.

A summary of the company's principal transaction revenues for the quarter and nine months ended September 30, 2013 and for comparable prior periods is set forth below.

                                 
 
Quarter Ended Nine Months Ended
(in thousands) Sept. 30, 2013   June 30, 2013   Sept. 30, 2012   Sept. 30, 2013   Sept. 30, 2012
 
Hedge fund investments $ 432   $ 908   $ 1,580   $ 3,238   $ 4,076
 
Principal investments:
Investment in Harvest Capital Credit 205 (136 ) - 69 -
Other principal investments   (139 )   55     38     -     620
Total principal investments   66     (81 )   38     69     620
 
Venture investments:
Investment in Harvest Growth Capital funds (33 ) 86 (131 ) 34 394
Other venture investments and warrants   794     485     (421 )   1,831     360
Total venture investments   761     571     (552 )   1,865     754
 

Principal transaction revenues net of non-controlling interests in Harvest Growth Capital funds

  1,259     1,398     1,066     5,172     5,450
 
Non-controlling interests in
Harvest Growth Capital funds   (619 )   895     (3,021 )   (323 )   6,859
 
Total principal transaction revenues $ 640   $ 2,293     ($1,955 ) $ 4,849   $ 12,309

Included in the net gain of $0.6 million for the quarter ended September 30, 2013 was a loss of $0.6 million attributable to non-controlling interests in net realized and unrealized losses at Harvest Growth Capital and Harvest Growth Capital II, venture capital funds managed by Harvest Capital Strategies that are consolidated under GAAP. GAAP accounting requires that JMP Group consolidate both funds due to Harvest Capital Strategies' role as the funds' manager and managing member, despite the company's ownership of just 4.6% of Harvest Growth Capital and 2.2% of Harvest Growth Capital II. The presentation of adjusted net revenues elsewhere in this press release excludes JMP Group's non-controlling interests in these funds; and, accordingly, the aforementioned loss of $0.6 million is not included in adjusted net revenues. Net of its non-controlling interests, JMP Group had a net realized and unrealized loss of $33,000 on its investments in Harvest Growth Capital and Harvest Growth Capital II for the quarter. For more information on adjusted net revenues, including a reconciliation to net revenues, please see the section below titled "Non-GAAP Financial Measures."

Gain on Sale, Payoff and Mark-to-Market of Loans and Loan Loss Provision

Net realized and unrealized gains from the sale, payoff or mark-to-market of loans were $0.2 million, compared to $0.6 million for the third quarter of 2012. Gains for the third quarter of 2013 were generated by JMP Credit Corporation, while gains for the third quarter of 2012 were generated by JMP Credit Corporation as well as Harvest Capital Credit, which, having completed its initial public offering in May 2013, is no longer consolidated by JMP Group under GAAP. For the nine months ended September 30, 2013, net realized and unrealized gains from the sale, payoff or mark-to-market of loans were $1.6 million, compared to $3.0 million for the nine months ended September 30, 2012.

For the quarter ended September 30, 2013, JMP Credit Corporation realized a net gain of $0.2 million due to the sale or payoff of 50 of the loans in its portfolio, compared to $0.2 million in connection with 28 loans for the third quarter of 2012. For the nine months ended September 30, 2013, the net realized gain amounted to $1.5 million due to the sale or payoff of 117 loans, compared to $2.6 million in connection with 67 loans for the nine months ended September 30, 2012. For the quarter and nine months ended September 30, 2013, net realized gains of $0.1 million and $0.3 million, respectively, resulted from the sale or payoff of loans acquired by JMP Credit in April 2009, compared to net realized gains of $0.5 million and $2.0 million, respectively, for the quarter and nine months ended September 30, 2012.

At September 30, 2013, discounts and reserves (including liquidity discounts, allowances for loan losses and deferred loan fees) equaled $8.5 million, or 1.2% of gross performing loans outstanding at JMP Credit. There were no impaired loans and no associated discounts or reserves at September 30, 2013; while, at September 30, 2012, discounts and reserves (including credit discounts, liquidity discounts, and allowances for loan losses) with regard to impaired loans equaled $3.2 million, or 0.8% of gross loans outstanding.

A net loan loss provision of $0.5 million for the quarter ended September 30, 2013 was recorded at JMP Credit, which is consolidated under GAAP, of which $0.4 million was a general reserve in connection with the loan portfolio underlying the company's recently closed collateralized loan obligation, JMP Credit Advisors CLO II. At September 30, 2013, general loan loss reserves equaled 0.5% of gross performing loans at JMP Credit, in line with 0.5% at September 30, 2012.

Other Income

Other income was $0.3 and $0.6 million for the quarter and nine months ended September 30, 2013, respectively, compared to $0.4 million and $3.5 million for the quarter and nine months ended September 30, 2012, respectively. The year-over-year comparison is uneven for the nine-month periods in part because, in the second quarter of 2012, New York Mortgage Trust, Inc. paid a one-time fee of $1.7 million upon termination of its advisory agreement with Harvest Capital Strategies.

Net Interest Income

Net interest income was $4.3 million, compared to net interest expense of $1.8 million for the third quarter of 2012, when interest expense due to net amortization of liquidity discounts at JMP Credit Corporation equaled $7.5 million. Excluding the amortization-related expense for the period would have resulted in net interest income of $5.7 million for the third quarter of 2012. Further excluding net interest income of $0.8 million attributable to Harvest Capital Credit, which, due to its IPO, is no longer consolidated by JMP Group, net interest income would have been $4.9 million for the third quarter of 2012. For the nine months ended September 30, 2013, net interest expense was $1.2 million, compared to net interest expense of $5.5 million for the nine months ended September 30, 2012; excluding interest expense due to net amortization of liquidity discounts, net interest income would have been $13.8 million and $16.1 million, respectively, for those periods.

Expenses

Compensation and Benefits

Compensation and benefits expense was $24.7 million, compared to $17.4 million for the third quarter of 2012. Non-cash compensation expense attributable to stock-based awards such as stock options and restricted stock units, or RSUs, was $1.0 million, compared to $0.2 million for the third quarter of 2012. The aforementioned compensation and benefits expense of $24.7 million excludes $1.3 million of net deferred compensation, which is composed of (a) amortization expense tied to deferred compensation awarded at year-end 2012 though recognized as a GAAP expense in 2013 and 2014 less (b) one quarter of the compensation assumed to be awarded at year-end 2013 and deferred into 2014 and 2015.

For the nine months ended September 30, 2013, compensation and benefits expense was $69.1 million, compared to $55.8 million for the nine months ended September 30, 2012. Non-cash compensation expense attributable to stock-based awards such as stock options and restricted stock units, or RSUs, was $2.7 million, compared to $0.6 million for the nine months ended September 30, 2012. The aforementioned compensation and benefits expense of $69.1 million excludes $3.6 million of net deferred compensation, which is composed of (a) amortization expense tied to deferred compensation awarded at year-end 2012 though recognized as a GAAP expense in 2013 and 2014 less (b) three quarters of the compensation assumed to be awarded at year-end 2013 and deferred into 2014 and 2015.

Excluding the cost of stock-based awards but accelerating and recognizing the cost of net deferred compensation for the period, compensation and benefits expense was 69.0% of adjusted net revenues for the quarter, compared to 59.5% for the third quarter of 2012, and was 65.8% for the nine months ended September 30, 2013, compared to 60.2% for the nine months ended September 30, 2012.

Non-Compensation Expense

Non-compensation expense was $6.8 million, compared to $6.3 million for the third quarter of 2012. For the nine months ended September 30, 2013, non-compensation expense was $22.0 million, compared to $17.9 million for the nine months ended September 30, 2012. The year-over-year increase for the nine-month period is in part due to one-time expenses totaling $2.5 million incurred by JMP Group in connection with Harvest Capital Credit's initial public offering in May 2013.

As a percentage of adjusted net revenues, non-compensation expense was 18.7% for the quarter, compared to 21.8% for the third quarter of 2012, and was 20.6% for the nine months ended September 30, 2013, compared to 19.6% for the nine months ended September 30, 2012. Excluding the aforementioned expense of $2.5 million, non-compensation expense as a percentage of adjusted net revenues would have been 18.3% for the nine months ended September 30, 2013.

Personnel

At September 30, 2013, the company had 231 full-time employees, up from 218 at June 30, 2013 and 217 at September 30, 2012.

Non-GAAP Financial Measures

In addition to the GAAP financial results presented in this press release, JMP Group presents the non-GAAP financial measures discussed below. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance. Furthermore, company management believes that this presentation enables more 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 items should not be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring. Therefore, both GAAP measures of JMP Group's financial performance and the respective non-GAAP measures should be considered together. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies.

Adjusted Net Revenue

Adjusted net revenue is a non-GAAP financial measure that (i) includes asset management fees, net interest income or expense, and other revenues eliminated upon the consolidation of Harvest Growth Capital, Harvest Growth Capital II and Harvest Capital Credit (until its IPO on May 2, 2013), (ii) excludes the net amortization of liquidity discounts on loans held and asset-backed securities issued by JMP Credit Advisors CLO I, (iii) reverses the general loan loss provision taken in connection with the origination of JMP Credit Advisors CLO II, (iv) adjusts for unrealized mark-to-market gains and losses recorded at Harvest Capital Credit, (v) reverses net unrealized gains and losses on strategic equity investments and warrants, and (vi) excludes the non-controlling interest in net unrealized gains and losses on Harvest Growth Capital and Harvest Growth Capital II. In particular, adjusted net revenue adjusts for:

A reconciliation of JMP Group's net revenues to its adjusted net revenues for the quarter and nine months ended September 30, 2013 and for comparable prior periods is set forth below.

                               
 
Quarter Ended Nine Months Ended
(in thousands) Sept. 30, 2013 June 30, 2013 Sept. 30, 2012 Sept. 30, 2013 Sept. 30, 2012
 
Revenues:
Non-interest revenues $ 31,531 $ 34,273 $ 20,316 $ 93,142 $ 83,813
Net interest income/(expense) 4,313 (2,394 ) (1,754 ) (1,222 ) (5,522 )
Loan loss provision   (467 )   (975 )   65     (2,391 )   (1,135 )
Total net revenues 35,377 30,904 18,627 89,529 77,156

Asset management fees earned on Harvest Growth Capital funds and Harvest Capital Credit (1) (2)

386 522 597 1,765 1,282

Dividend distribution from Harvest Capital Credit (2)

- 421 157 678 234

Less: Net interest income and other revenues from Harvest Capital Credit (2)

  -     (789 )   (772 )   (2,116 )   (1,587 )

Total net revenues including fee revenues from consolidated entities

  35,763     31,058     18,609     89,856     77,085  
 
Add back/(subtract):

Net amortization of liquidity discounts on loans and asset-backed securities issued

- 6,239 7,456 14,979 21,631

Loan loss provision — JMP Credit Advisors II

377 1,128 1,505

Unrealized mark-to-market (gain)/loss — Harvest Capital Credit

- - (360 ) (515 ) (373 )

Realization of mark-to-market gain — Harvest Capital Credit

- 772 - 772 -

Net unrealized (gain)/loss on strategic equity investments and warrants

(531 ) (243 ) 107 (617 ) 233

Non-controlling interests in net unrealized losses/(gains) on Harvest Growth Capital funds

  619     (895 )   3,021     323     (6,859 )
Adjusted net revenues $ 36,228   $ 38,059   $ 28,833   $ 106,303   $ 91,717  

(1) Adjustments to reflect economic contributions from two Harvest Growth Capital funds and Harvest Capital Credit as though deconsolidated for purposes of financial reporting; upon deconsolidation, fee revenues and dividend payments would be recognized, while net interest income and other revenues generated by these entities would not be recorded by JMP Group.

(2) Subsequent to its IPO on May 2, 2013, Harvest Capital Credit is no longer consolidated; therefore, fees and dividends related to Harvest Capital Credit are included in non-interest revenues following that date.

Company management has utilized adjusted net revenue, adjusted in the manner described above, as an additional device to aid in understanding and analyzing JMP Group's financial results for the periods presented. Management believes that adjusting net revenue in these ways is useful in that it allows for a better evaluation of the performance of JMP Group's ongoing business and facilitates a meaningful comparison of the company's results in a given period to those in prior and future periods.

Asset Management-Related Fee Revenues

Asset management-related fee revenue is a non-GAAP financial measure that sums asset management fees with certain fee revenues (in particular, asset management fundraising fees generated by JMP Securities, loan fees, and revenues from fee-sharing arrangements with other asset managers) that are reported in JMP Group's financial statements as other income. In addition, asset management-related fee revenues incorporate base management and incentive fees earned by Harvest Capital Strategies as manager of Harvest Growth Capital, Harvest Growth Capital II and Harvest Capital Credit. JMP Group consolidates the two Harvest Growth Capital funds and Harvest Capital Credit (until its IPO on May 2, 2013) in accordance with GAAP accounting standards; however, asset management fees generated by these entities are included in asset management-related fee revenues as though deconsolidated.

A statement of JMP Group's asset management-related fee revenues for the quarter and nine months ended September 30, 2013 and for comparable prior periods is set forth below.

                       
 
Quarter Ended Nine Months Ended
(in thousands) Sept. 30, 2013   June 30, 2013   Sept. 30, 2012   Sept. 30, 2013   Sept. 30, 2012
 
Base management fees:
Fees reported as asset management fees $ 2,585 $ 2,552 $ 2,195 $ 7,502 $ 7,094
Fees reported as other income - - 339 262 1,654

Fees earned at Harvest Growth Capital, Harvest Growth Capital II and Harvest Capital Credit/HCAP Advisors

  636   595   275   1,740   717
Total base management fees   3,221   3,147   2,809   9,504   9,465
 
Incentive fees:
Fees reported as asset management fees 2,493 836 1,560 7,715 3,627

Fees earned at Harvest Growth Capital, Harvest Growth Capital II and Harvest Capital Credit/HCAP Advisors

  -   66   322   417   564
Total incentive fees   2,493   902   1,882   8,132   4,191
 
Other fee income:
Fundraising and other fees 267 26 26 319 79
New York Mortgage Trust termination fee   -   -   -   -   1,735
Total other fee income   267   26   26   319   1,814
 
Asset management-related fee revenues:
All fees reported as asset management fees 5,078 3,388 3,755 15,217 10,721
All fees reported as other income 267 26 365 581 3,468

All fees earned at Harvest Growth Capital, Harvest Growth Capital II and Harvest Capital Credit/HCAP Advisors

  636   661   597   2,157   1,281

Total asset management-related fee revenues

$ 5,981 $ 4,075 $ 4,717 $ 17,955

$

15,470

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.

Operating Net Income

Operating net income is a non-GAAP financial measure that (i) reverses compensation expense related to stock-based awards and deferred compensation, (ii) excludes the net amortization of liquidity discounts on loans held and asset-backed securities issued by JMP Credit Advisors CLO I, (iii) reverses the general loan loss provision taken in connection with the origination of JMP Credit Advisors CLO II, (iv) adjusts for unrealized mark-to-market gains and losses recorded at Harvest Capital Credit, (v) reverses net unrealized gains and losses on strategic equity investments and warrants, and (vi) assumes an effective tax rate. In particular, operating net income adjusts for:

A reconciliation of JMP Group's net income to its operating net income for the quarter and nine months ended September 30, 2013 and for comparable prior periods is set forth below.

                 
 
 
Quarter Ended Nine Months Ended
(in thousands, except per share amounts) Sept. 30, 2013 June 30, 2013 Sept. 30, 2012 Sept. 30, 2013 Sept. 30, 2012
 
Net gain/(loss) attributable to JMP Group Inc. $3,289 ($1,435) ($1,307) $135 ($2,571)
 
Subtract:
Income tax (expense)/benefit (1,634) 644 884 (178) 1,423
Income/(loss) before taxes 4,923 (2,079) (2,191) 313 (3,994)
 
Add back/(subtract):
Compensation expense — stock options 262 259 - 658 -
Compensation expense — post-IPO RSUs 699 704 194 2,019 582
Compensation expense —
deferred compensation (1,277) (1,146) - (3,547) -
Net amortization of liquidity discounts —
JMP Credit Advisors CLO I - 6,239 7,456 14,979 21,631
Loan loss provision —
JMP Credit Advisors CLO II 274 821 - 1,095 -
Unrealized mark-to-market (gain)/loss —
Harvest Capital Credit (205) 100 (333) (267) (246)
Realization of mark-to-market gain —
Harvest Capital Credit - 772 - 772 -
Unrealized mark-to-market (gain)/loss —
strategic equity investments and warrants (326) (343) 107 (512) 233
Operating income before taxes 4,350 5,327 5,233 15,510 18,206
 
Income tax expense assumed 1,653 2,024 2,198 5,893 7,646
Operating net income $2,697 $3,303 $3,035 $9,617 $10,560
 
Operating net income per share:
Basic $0.12 $0.15 $0.13 $0.43 $0.47
Diluted $0.12 $0.15 $0.13 $0.43 $0.46
 
Weighted average shares outstanding:
Basic 22,014 22,199 22,737 22,271 22,564
Diluted 22,713 22,707 22,830 22,669 22,977

Company management has utilized operating net income on a total and per share basis, adjusted in the manner described above, as an additional device to aid in understanding and analyzing JMP Group's financial results for the periods presented. Management believes that operating net income provides useful information by excluding certain items that may not be representative of the company's core operating results or core business activities. Management also believes that operating net income is a useful measure because it allows for a better evaluation of the performance of JMP Group's ongoing business and facilitates a meaningful comparison of the company's results in a given period to those in prior and future periods.

Segment Reporting

In order to demonstrate the contribution to the company's results of each of its primary businesses on a standalone basis, JMP Group presents the operating net income generated by each segment in the tables that follow. Management believes that this presentation enables investors to better understand the separate but interrelated financial operations of the company's various business lines and to more accurately assess the contribution of each to JMP Group's aggregate results.

Total net revenues have been adjusted, in part, as detailed above in the section titled "Adjusted Net Revenue," and the resulting adjusted net revenues (i) include asset management fees, net interest income or expense, and other revenues eliminated upon the consolidation of Harvest Growth Capital, Harvest Growth Capital II and Harvest Capital Credit (until its IPO on May 2, 2013), (ii) exclude the net amortization of liquidity discounts on loans held and asset-backed securities issued by JMP Credit Advisors CLO I, (iii) reverse the general loan loss provision taken in connection with the origination of JMP Credit Advisors CLO II, (iv) adjust for unrealized mark-to-market gains and losses recorded at Harvest Capital Credit; (v) reverse net unrealized gains and losses on strategic equity investments and warrants and (vi) exclude non-controlling interests in net unrealized gains and losses on Harvest Growth Capital and Harvest Growth Capital II. Total non-interest expenses have been adjusted, in part, as detailed above in the section titled "Operating Net Income," and the resulting adjusted non-interest expense reverses compensation expense related to stock-based awards granted subsequent to JMP Group's initial public offering. For the purposes of calculating operating net income, an effective tax rate of 38% is assumed.

A statement of JMP Group's operating net income on a segment basis for the quarter ended September 30, 2013 is set forth below.

                                     
 
Quarter Ended September 30, 2013
Harvest (1) JMP Operating HGC HCC (1) Consoli-
JMP Capital Credit Elimin- JMP Consoli- Consoli- dated JMP
(in thousands, except per share amounts) Securities   Strategies Corp. Corporate   ations Group dation dation Group
 
Revenues:
Investment banking $ 19,149 - - - ($12 ) $ 19,137 - - $ 19,137
Brokerage 5,750 - - - - 5,750 - - 5,750
Asset management-related fees (2) - $ 5,995 $ 70 - (84 ) 5,981 ($386 ) - 5,595
Principal transactions (3) 354 257 108 $ 10 - 729 (618 ) - 111
Gain on sale and payoff of loans - - 166 - - 166 - - 166
Net dividend (expense)/income 6 - - 237 - 243 - - 243
Net interest (expense)/income (11 ) - 5,306 (983 ) - 4,312 - - 4,312
Provision for loan losses   -     -     (90 )   -   -     (90 ) -   -   (90 )
Adjusted net revenues 25,248 6,252 5,560 (736 ) (96 ) 36,228 (1,004 ) - 35,224
 
Expenses:
Non-interest expense/(income) (4) 21,528 5,797 2,032 2,479 (96 ) 31,740 48 - 31,788
 
Less: Non-controlling interest (5)   -    

(115

)   253     -   -     138   (1,052 ) -   (914 )

 

Operating income/(loss) before taxes

3,720 570 3,275 (3,215 ) - 4,350 - - 4,350
 

Income tax expense/(benefit) (assumed rate of 38%)

  1,414     215     1,245     (1,221 ) -     1,653   -   -   1,653  
Operating net income/(loss) $ 2,306   $ 355   $ 2,030     ($1,994 ) -   $

2,697

  -   - $ 2,697  
 
Operating net income/(loss) per share:
 
Basic $ 0.10 $ 0.02 $ 0.09 ($0.09 ) - $ 0.12 - - $ 0.12
Diluted $ 0.10 $ 0.02 $ 0.09 ($0.09 ) - $ 0.12 - - $ 0.12

(1) Harvest Capital Credit is deconsolidated as of its initial public offering on May 2, 2013. Upon that IPO, HCAP Advisors was formed to act as Harvest Capital Credit's external manager; revenues and expenses generated by HCAP Advisors are aggregated in the results attributed to Harvest Capital Strategies in this presentation.

(2) Reflects revenues detailed in section above titled "Asset Management-Related Fee Revenues;" management fees of $0.4 million are eliminated upon consolidation of two Harvest Growth Capital funds.

(3) Reverses net unrealized gains and losses on strategic equity investments and warrants. Excludes non-controlling interests in net realized and unrealized gains and losses totaling $0.6 million that are recognized upon consolidation of two Harvest Growth Capital funds.

(4) Reverses stock-based compensation expense as well as accounting adjustments related to deferred compensation expense and excludes fund-related expenses totaling $48,000 that are recognized upon consolidation of two Harvest Growth Capital funds.

(5) Excludes non-controlling interests totaling $1.1 million in the net realized and unrealized losses of two Harvest Growth Capital funds that are recognized upon consolidation of the entities.

A statement of JMP Group's operating net income on a segment basis for the nine months ended September 30, 2013 is set forth below.

                                       
 
Nine Months Ended September 30, 2013
Harvest (1) JMP Operating HGC HCC (1) Consoli-
JMP Capital Credit Elimin- JMP Consoli- Consoli- dated JMP
(in thousands, except per share amounts) Securities Strategies Corp. Corporate ations Group dation dation Group
 
Revenues:
Investment banking $ 52,636 - - - ($335 ) $ 52,301 - - $ 52,301
Brokerage 17,924 - - - - 17,924 - - 17,924
Asset management-related fees (2) - $ 18,100 $ 206 - (352 ) 17,954 ($1,183 ) ($584 ) 16,187
Principal transactions (3) 739 919 117 $ 2,766 6 4,547 (373 ) 406 4,580
Gain on sale and payoff of loans (4) - - 1,501 - - 1,501 - - 1,501
Net dividend (expense)/income (10 ) 678 - 300 - 968 - (678 ) 290
Net interest (expense)/income (5) (60 ) - 14,145 (2,091 ) - 11,994 1 1,760 13,755
Provision for loan losses   -     -     (886 )   -   -     (886 ) -   -     (886 )
Adjusted net revenues 71,229 19,697 15,083 975 (681 ) 106,303 (1,555 ) 904 105,652
 
Expenses:
Non-interest expense/(income) (6)(8) 61,028 19,876 627 10,716 (662 ) 91,585 141 144 91,870
 
Less: Non-controlling interest (7)(8)   -     (1,466 )   674     -   -     (792 ) (1,696 ) 760     (1,728 )

 

Operating income/(loss) before taxes

10,201

1,287

13,782

(9,741

) (19 ) 15,510 - -

15,510

 

Income tax expense/(benefit)(assumed rate of 38%)

  3,876     488     5,238     (3,702 ) (7 )   5,893   -   -     5,893  

Operating net income/(loss)

$ 6,325   $ 799   $ 8,544     ($6,039 ) ($12 ) $ 9,617   -   -   $ 9,617  
 
Operating net income/(loss) per share:
 
Basic $ 0.28 $ 0.04 $ 0.38 ($0.27 ) ($0.00 ) $ 0.43 - - $ 0.43
Diluted $ 0.28 $ 0.04 $ 0.38 ($0.27 ) ($0.00 ) $ 0.43 - - $ 0.43

(1) Harvest Capital Credit is deconsolidated as of its initial public offering on May 2, 2013. Upon that IPO, HCAP Advisors was formed to act as Harvest Capital Credit's external manager; revenues and expenses generated by HCAP Advisors are aggregated in the results attributed to Harvest Capital Strategies in this presentation.

(2) Reflects revenues detailed in section above titled "Asset Management-Related Fee Revenues;" management fees totaling $1.8 million are eliminated upon consolidation of two Harvest Growth Capital funds and Harvest Capital Credit (until its IPO on May 2, 2013).

(3) Reverses net unrealized gains and losses on strategic equity investments and warrants and includes previously reversed net unrealized gains at Harvest Capital Credit. Excludes non-controlling interests in net realized and unrealized gains and losses related to two Harvest Growth Capital funds as well as other principal transaction revenues related to Harvest Capital Credit; net realized and unrealized gains totaling $33,000 are recognized upon consolidation of those entities.

(4) Excludes net unrealized mark-to-market gain of $0.1 million on the loan portfolio at Harvest Capital Credit.

(5) Excludes expense related to the non-cash net amortization of liquidity discounts associated with JMP Credit Advisors CLO I.

(6) Reverses stock-based compensation expense as well as accounting adjustments related to deferred compensation expense and excludes fund-related expenses totaling $0.3 million that are recognized upon consolidation of two Harvest Growth Capital funds and Harvest Capital Credit (until its IPO on May 2, 2013).

(7) Excludes non-controlling interests totaling $0.9 million in the net realized and unrealized losses of two Harvest Growth Capital funds and Harvest Capital Credit (until its IPO on May 2, 2013) that are recognized upon consolidation.

(8) Includes non-interest expense of $2.5 million and non-controlling interest of $1.2 million, equaling $0.03 per share after tax in the aggregate, related to the IPO of Harvest Capital Credit.

Adjusted Tangible Book Value per Share

At September 30, 2013, JMP Group's tangible book value per share was $5.63, compared to $5.47 at June 30, 2013 and $5.34 at September 30, 2012. Adjusting book value by accelerating the recognition of deferred compensation expense, JMP Group's adjusted tangible book value per share at September 30, 2013 would have been $5.34, as indicated by the table below.

                     
 
(in thousands, except per share amounts) Sept. 30, 2013 June 30, 2013 Sept. 30, 2012
 
Total JMP Group stockholders' equity $ 123,740 $ 121,120 $ 121,226
Less: Goodwill and intangible assets   -     -     -  
Tangible stockholders' equity 123,740 121,120 121,226
 
Liquidity discount on loans - - 6,484
Liquidity discount on asset-backed securities issued   -     -     (24,543 )
Net liquidity discount - - (18,059 )
Compensation expense — deferred compensation   (10,533 )   (9,255 )   -  
Pre-tax adjustments to equity (10,533 ) (9,255 ) (18,059 )
Income tax benefit (assumed rate of 38% for 2013)   4,003     3,517     7,585  
After-tax adjustments to equity   (6,530 )   (5,738 )   (10,474 )
 
Adjusted tangible stockholders' equity $ 117,210   $ 115,382   $ 110,752  
 
Adjusted tangible book value per share $ 5.34   $ 5.21   $ 4.88  
 
Basic shares outstanding 21,961 22,138 22,706
 
Quarterly operating ROATE (1) 9.3 % 11.3 % 11.1 %
LTM operating ROATE (1) 13.5 % 14.0 % 12.7 %

(1) Return on adjusted tangible equity (ROATE) equals annualized operating net income divided by average adjusted tangible stockholders' equity.

Share Repurchase Activity

During the quarter ended September 30, 2013, JMP Group repurchased 187,256 shares of its common stock at an aggregate price of $1.2 million, or $6.48 per share. At quarter-end, 1.3 million shares remained eligible for repurchase under the company's existing repurchase authorization.

Cautionary Note Regarding Quarterly Financial Results

Due to the nature of its business, JMP Group's quarterly revenues and net income may fluctuate materially depending on: the size and number of investment banking transactions on which it advises; the timing of the completion of those transactions; the size and number of securities trades which it executes for brokerage customers; the performance of its asset management funds and inflows and outflows of assets under management; gains or losses stemming from sales of or prepayments on, or losses stemming from defaults on, loans underlying the company's collateralized loan obligations; and the effect of the overall condition of the securities markets and economy as a whole. Accordingly, revenues and net income in any particular quarter may not be indicative of future results. Furthermore, JMP Group's compensation expense is generally based upon revenues and can fluctuate materially in any quarter, depending upon the amount and sorts of revenue recognized as well as other factors. The amount of compensation and benefits expense recognized in a particular quarter may not be indicative of such expense in any future period. As a result, the company suggests that its annual results may be the most meaningful gauge for investors in evaluating the performance of its business.

Cautionary Note Regarding Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide JMP Group's current expectations or forecasts about future events, including beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expected or implied by the forward-looking statements. The company's actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the company's Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on March 8, 2013, 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, 2012 and all other periodic reports are available on JMP Group's website at www.jmpg.com and on the Securities and Exchange Commission's website at www.sec.gov. Unless required by law, JMP Group undertakes no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this press release.

Conference Call

JMP Group will hold a conference call to discuss the results detailed herein at 10:00 a.m. EDT on Wednesday, October 23, 2013. To participate in the call, dial (888) 566-6060 (domestic) or (973) 200-3100 (international). The conference identification number is 88407046.

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 Inc. is a full-service investment banking and 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 Advisors. For more information, visit www.jmpg.com.

 
 

JMP GROUP INC.

Consolidated Statements of Financial Condition

(Unaudited)

                   
 
(in thousands) Sept. 30, 2013 Dec. 31, 2012
 
Assets
 
Cash and cash equivalents $ 55,740 $ 67,075
Restricted cash and deposits 84,788 69,813
Marketable securities owned, at fair value 19,569 14,347
Other investments 169,413 81,161
Loans held for sale - 3,134
Small business loans - 38,934

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

709,403 401,003
Deferred tax assets 9,237 13,087
Other assets   35,170   21,308
Total assets $ 1,083,320 $ 709,862
 
Liabilities and Stockholders' Equity
 
Liabilities:
Marketable securities sold, but not yet purchased, at fair value $ 15,397 $ 11,567
Accrued compensation 34,459 20,256
Asset-backed securities issued 722,279 415,456
Line of credit - 28,227
Note payable 17,184 10,486
Bond payable 46,000 -
Deferred tax liability 3,095 9,775
Other liabilities   26,695   26,791
Total liabilities   865,109   522,558
 
Redeemable non-controlling interest   -   161
 
Stockholders' Equity:
Total JMP Group Inc. stockholders' equity 123,740 126,871
Non-redeemable non-controlling interest   94,471   60,272
Total equity   218,211   187,143
Total liabilities and stockholders' equity $ 1,083,320 $ 709,862

 
 

JMP GROUP INC.

Consolidated Statements of Operations

(Unaudited)

                           
 
Quarter Ended Nine Months Ended

(in thousands, except per share amounts)

Sept. 30, 2013

 

Sept. 30, 2012

Sept. 30, 2013

 

Sept. 30, 2013

 
Revenues:
Investment banking $ 19,137 $ 12,218 $ 52,301 $ 38,010
Brokerage 5,750 5,371 17,924 16,275
Asset management fees 5,328 3,755 15,606 10,721
Principal transactions 640 (1,955 ) 4,849 12,309
Gain on sale, payoff and mark-to-market of loans 166 564 1,591 3,016
Net dividend (expense) 243 (2 ) 290 (25 )
Other income   267     365     581     3,507  
Non-interest revenues   31,531     20,316     93,142     83,813  
 
Interest income 8,734 8,333 24,603 24,051
Interest expense   (4,421 )   (10,087 )   (25,825 )   (29,573 )
Net interest income/(expense)   4,313     (1,754 )   (1,222 )   (5,522 )
 
Provision for loan losses   (467 )   65     (2,391 )   (1,135 )
Total net revenues   35,377     18,627     89,529     77,156  
 
Non-interest expenses:
Compensation and benefits 24,685 17,358 69,066 55,833
Administration 1,919 1,645 7,255 4,604
Brokerage, clearing and exchange fees 939 902 2,851 2,656
Travel and business development 994 746 2,991 2,435
Communications and technology 907 909 2,592 2,642
Occupancy 822 814 2,434 2,352
Professional fees 632 967 2,468 2,324
Depreciation 231 227 695 642
Other   342     67     649     282  
Total non-interest expense   31,471     23,635     91,001     73,770  
 
Income/(loss) before income tax expense 3,906 (5,008 ) (1,472 ) 3,386
Income tax expense/(benefit)   1,634     (884 )   178     (1,423 )
Net income/(loss) 2,272 (4,124 ) (1,650 ) 4,809
Less: Net (loss)/income attributable to noncontrolling interests   (1,017 )   (2,817 )   (1,785 )   7,380  
Net income/(loss) attributable to JMP Group Inc. $ 3,289     ($1,307 ) $ 135     ($2,571 )
 
Net income/(loss) attributable to JMP Group Inc.
per share:
Basic $ 0.15 ($0.06 ) $ 0.01 ($0.11 )
Diluted $ 0.14 ($0.06 ) $ 0.01 ($0.11 )
 
Weighted average common shares outstanding:
Basic 22,014 22,737 22,271 22,564
Diluted 22,713 22,737 22,669 22,564

JMP Group Inc.
Investor Relations
Andrew Palmer, 415-835-8978
apalmer@jmpg.com
or
Media Relations
Dukas Public Relations
Seth Linden, 212-704-7385
seth@dukaspr.com
or
Zach Leibowitz, 212-704-7385
zach@dukaspr.com

Source: JMP Group Inc.

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