JMP Group LLC
Jul 25, 2014

JMP Group Reports Second Quarter 2014 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 six months ended June 30, 2014.

"I am happy to report another solid quarter for JMP Group, as JMP Securities continues to benefit from material market share gains since 2009 in combination with a resurgent equity capital markets environment," said Chairman and Chief Executive Officer Joe Jolson. "For the second quarter, we generated record adjusted net revenues of $50.6 million and operating earnings of $0.18 per share. Excluding net investment income and corporate costs, our three operating platforms earned a record $0.65 per share for the latest twelve-month period, an increase of 110% from $0.31 per share for the prior twelve-month period. While we remain committed to active capital management, our tangible book value per share has increased 13% in the past year to $6.16, in addition to returning 51% of our operating earnings to stockholders through cash dividends and share buybacks during that time."

Segment Results of Operations

At JMP Securities, the broker-dealer segment, adjusted net revenues were $29.5 million, an increase of 4.4% from $28.3 million for the second quarter of 2013. The broker-dealer segment's operating margin on adjusted net revenues was 16.8%, compared to 20.5% for the prior quarter and 17.0% for the second quarter of 2013.

At Harvest Capital Strategies, the asset management segment, adjusted net revenues of $15.5 million increased 266.4% from $4.2 million for the second quarter of 2013. JMP Group's return on its capital invested in hedge funds managed by Harvest Capital Strategies was 1.8% for the period.

At JMP Credit Advisors, the corporate credit management segment, adjusted net revenues totaled $1.5 million, an increase of 21.2% from $1.3 million for the second quarter of 2013. For the second quarter of 2014, there was a net realized loss of $0.6 million on the sale or payoff of loans underlying collateralized loan obligations; while, for the second quarter of 2013, there was a net realized gain of $0.3 million.

A summary of JMP Group's operating net income per share by segment for the quarter and six months ended June 30, 2014, and for comparable prior periods is set forth below.

  Quarter Ended   Six Months Ended
($ as shown) June 30, 2014   Mar. 31, 2014   June 30, 2013 June 30, 2014   June 30, 2013
Broker-dealer $0.13 $0.18 $0.13 $0.31 $0.18
Asset management 0.02 0.01 (0.02 ) 0.03 (0.01 )
Corporate credit management 0.02   0.00   0.01   0.02   0.01  

Operating platform EPS

0.17 0.19 0.12 0.36 0.18
Investment income 0.12 0.13 0.15 0.24 0.35
Corporate costs (0.11 ) (0.13 ) (0.12 ) (0.23 ) (0.23 )
Operating EPS (diluted) $0.18   $0.19  

$0.15

  $0.37   $0.30  

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 $23.1 million, an increase of 9.5% from $21.1 million for the second quarter of 2013. For the six months ended June 30, 2014, investment banking revenues were $48.1 million, an increase of 45.1% from $33.2 million for the six months ended June 30, 2013.

A summary of the company's investment banking revenues and transaction counts for the quarter and six months ended June 30, 2014, and for comparable prior periods is set forth below.

  Quarter Ended   Six Months Ended
June 30, 2014   Mar. 31, 2014   June 30, 2013 June 30, 2014   June 30, 2013
($ in thousands) Count   Revenues Count   Revenues Count   Revenues Count   Revenues Count   Revenues
Public equity 34 $14,717 33 $19,521 37 $9,517 67 $34,238 70 $18,431

Debt and convertible securities

5 1,090 6 1,571 8 4,890 11 2,661 18 6,538

Private capital markets and other

- 325 1 698 2 2,830 1 1,023 2 2,975
Strategic advisory 8 6,929 3 3,263 4 3,820 11 10,192 5 5,220
Total 47 $23,061 43 $25,053 51 $21,057 90 $48,114 95 $33,164

Brokerage

Net brokerage revenues were $6.5 million, a decrease of 7.2% from $7.0 million for the second quarter of 2013. For the six months ended June 30, 2014, net brokerage revenues were $13.1 million, an increase of 7.9% from $12.2 million for the six months ended June 30, 2013.

Asset Management

Asset management-related fee revenues were $15.4 million, an increase of 277.3% from $4.1 million for the second quarter of 2013, largely due to an increase in incentive fees to $11.2 million from $0.8 million. For the six months ended June 30, 2014, asset management-related fee revenues were $21.5 million, an increase of 79.7% from $12.0 million for the six months ended June 30, 2013. For more information on asset management-related fee revenues, please see the section below titled "Non-GAAP Financial Measures."

Client assets under management at June 30, 2014, totaled $1.9 billion, including $1.0 billion of funds managed by Harvest Capital Strategies and HCAP Advisors and $889.9 million par value of loans and cash managed by JMP Credit Advisors. Client assets under management were $1.8 billion at March 31, 2014, and $1.6 billion at June 30, 2013. Including sponsored funds in which Harvest Capital Strategies owns an economic interest, client assets under management totaled $2.2 billion at June 30, 2014.

At June 30, 2014, private capital, including corporate credit, small business lending, venture capital and real estate-related advisory services, represented 60.0% of client assets under management, including sponsored funds.

Principal Transactions

Principal transactions generated net realized and unrealized gains of $9.7 million and $6.0 million for the quarter and six months ended June 30, 2014, respectively, compared to $2.3 million and $4.2 million for the quarter and six months ended June 30, 2013, respectively.

A summary of the company's principal transaction revenues for the quarter and six months ended June 30, 2014, and for comparable prior periods is set forth below.

  Quarter Ended   Six Months Ended
(in thousands) June 30, 2014   Mar. 31, 2014   June 30, 2013 June 30, 2014   June 30, 2013
 
Hedge fund investments $2,255   $1,707   $908   $3,963   $2,806  
 
Principal investments:

Investment in Harvest Capital Credit Corporation

19 (163 ) (136 ) (144 ) (136 )
Other principal investments (108 ) 55   54   (53 ) 139  
Total principal investments (89 ) (108 ) (82 ) (197 ) 3  
 
Venture investments:

Investment in Harvest Growth Capital funds

284 (302 ) 86 (19 ) 67
Other venture investments and warrants 255   289   485   544   1,037  
Total venture investments 539   (13 ) 571   525   1,104  
 

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

2,705   1,586   1,397   4,291   3,913  

Non-controlling interests in Harvest Growth Capital funds

6,983   (5,279 ) 895   1,704   296  
Total principal transaction revenues $9,688   ($3,693 ) $2,292   $5,995   $4,209  

Included in the net gain of $9.7 million for the quarter ended June 30, 2014, was a gain of $7.0 million attributable to non-controlling interests in net realized and unrealized gains 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 4.8% of Harvest Growth Capital and 2.3% 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 gain of $7.0 million is not included in adjusted net revenues. Net of its non-controlling interests, JMP Group had a net realized and unrealized gain of $0.3 million on its investments in Harvest Growth Capital and Harvest Growth Capital II for the quarter. For more information on adjusted net revenues, including reconciliation to net revenues, please see the section below titled "Non-GAAP Financial Measures."

Collateralized Loan Obligations

The net returns on invested capital managed by JMP Credit Advisors were 3.7% and 8.1% for the quarter and six months ended June 30, 2014, respectively, compared to 6.3% and 18.2% for the quarter and six months ended June 30, 2013, respectively.

At June 30, 2014, discounts and reserves (including liquidity discounts, allowances for loan losses and deferred loan fees) equaled $10.3 million, or 1.2% of gross performing loans outstanding at JMP Credit. At June 30, 2013, such discounts and reserves equaled $10.1 million, or 1.5% of gross performing loans outstanding. There were no impaired loans with associated discounts or reserves at either June 30, 2014, or June 30, 2013.

A net loan loss provision of $0.2 million for the quarter was recorded at JMP Credit, which is consolidated under GAAP, primarily representing a general reserve in connection with the loan portfolio being accumulated for JMP Credit Advisors CLO III. At June 30, 2014, general loan loss reserves equaled 0.6% of gross performing loans at JMP Credit.

Net Interest Income

Net interest income was $3.8 million, compared to net interest expense of $2.4 million for the second quarter of 2013, when interest expense due to net amortization of liquidity discounts at JMP Credit equaled $6.2 million. Excluding the amortization-related expense for the period, net interest income would have been $3.8 million for the second quarter of 2013. Further excluding net interest income of $0.5 million attributable to Harvest Capital Credit, which, due to its May 2013 initial public offering, is no longer consolidated by JMP Group, net interest income would have been $3.3 million for the second quarter of 2013.

For the six months ended June 30, 2014, net interest income was $7.5 million, compared to net interest expense of $5.5 million for the six months ended June 30, 2013, when interest expense due to net amortization of liquidity discounts at JMP Credit equaled $15.0 million. Excluding the amortization-related expense for the period, net interest income would have been $9.4 million for the six months ended June 30, 2013. Further excluding net interest income of $1.8 million attributable to Harvest Capital Credit, which, as previously noted, is no longer consolidated by JMP Group, net interest income would have been $7.6 million for the six months ended June 30, 2013.

Expenses

Compensation and Benefits

Compensation and benefits expense was $38.0 million, compared to $24.8 million for the second quarter of 2013. Excluding the cost of stock-based awards but accelerating and recognizing the cost of net deferred compensation related to the period, compensation and benefits expense was 72.7% of adjusted net revenues, compared to 65.5% for the second quarter of 2013. Further excluding compensation expense related to strategic initiatives, the compensation ratio was 71.8%, compared to 61.5% for the second quarter of 2013.

For the six months ended June 30, 2014, compensation and benefits expense was $69.4 million, compared to $44.4 million for the six months ended June 30, 2013. Excluding the cost of stock-based awards but accelerating and recognizing the cost of net deferred compensation related to the period, compensation and benefits expense was 71.3% of adjusted net revenues, compared to 64.0% for the six months ended June 30, 2013. Further excluding compensation expense related to strategic initiatives, the compensation ratio was 70.1%, compared to 60.1% for the six months ended June 30, 2013.

For more information on compensation ratios, please see the section below titled "Non-GAAP Financial Measures."

Non-Compensation Expense

Non-compensation expense was $7.2 million, compared to $9.0 million for the second quarter of 2013. For the six months ended June 30, 2014, non-compensation expense was $13.7 million, compared to $15.1 million for the six months ended June 30, 2013.

Personnel

At June 30, 2014, the company had 232 full-time employees, compared to 232 at March 31, 2014, and 218 at June 30, 2013.

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 non-GAAP items should not be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring. Therefore, both GAAP measures of JMP Group's financial performance and the respective non-GAAP measures should be considered together. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other companies.

Adjusted Net Revenue

Adjusted net revenue is a non-GAAP financial measure that (i) includes asset management fees, net interest income 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 with regard to other CLOs, (iv) adjusts for unrealized mark-to-market gains and losses recorded at Harvest Capital Credit (prior to its IPO on May 2, 2013), (v) reverses net unrealized gains and losses on strategic equity investments and warrants, (vi) excludes the non-controlling interest in net unrealized gains and losses on Harvest Growth Capital and Harvest Growth Capital II, and (vii) reverses unrealized mark-to-market gains or losses on investments related to deferred compensation. In particular, adjusted net revenue adjusts for:

A reconciliation of JMP Group's net revenues to its adjusted net revenues for the quarter and six months ended June 30, 2014, and for comparable prior periods is set forth below.

  Quarter Ended   Six Months Ended
(in thousands) June 30, 2014   Mar. 31, 2014   June 30, 2013 June 30, 2014   June 30, 2013
 
Revenues:
Non-interest revenues $53,942 $34,397 $34,273 $88,339 $61,611
Net interest income/(expense) 3,788 3,760 (2,394 ) 7,548 (5,535 )
Loan loss provision (212 ) (497 ) (975 ) (709 ) (1,924 )
Total net revenues 57,518 37,660 30,904 95,178 54,152

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

366 378 522 744 1,379

Dividend distribution from Harvest Capital Credit (2)

- - 421 - 678

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

-   -   (789 ) -   (2,116 )

Total net revenues including fee revenues from consolidated entities

57,884   38,038   31,058   95,922   54,093  
 
Add back/(subtract):

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

- - 6,239 - 14,979

General loan loss provision - collateralized loan obligations

382 550 1,128 932 1,128

Unrealized mark-to-market (gain) - Harvest Capital Credit

- - - - (515 )

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

- - 772 - 772

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

(72 ) 174 (243 ) 102 (86 )

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

(6,980 ) 5,297 (895 ) (1,683 ) (296 )

Unrealized mark-to-market (gain) - deferred compensation

(656 ) (70 ) (113 ) (726 ) (153 )
Adjusted net revenues $50,558   $43,989   $37,946   $94,547   $69,922  
 

(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 six months ended June 30, 2014, and for comparable prior periods is set forth below.

  Quarter Ended   Six Months Ended
(in thousands) June 30, 2014   Mar. 31, 2014   June 30, 2013 June 30, 2014   June 30, 2013
 
Base management fees:
Fees reported as asset management fees $2,725 $2,594 $2,552 $5,319 $4,917

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

804   768   595   1,572   1,103
Total base management fees 3,529   3,362   3,147   6,891   6,020
 
Incentive fees:
Fees reported as asset management fees 11,209 2,919 836 14,128 5,223

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

485   (359 ) 66   126   416
Total incentive fees 11,694   2,560   902   14,254   5,639
 
Other fee income:
Fundraising and other fees 152   223   26   375   314
Total other fee income 152   223   26   375   314
 
Asset management-related fee revenues $15,375   $6,145   $4,075   $21,520   $11,973
 

Summations:

Fees reported as asset management fees

$13,934

$5,513

$3,388

$19,447

$10,140

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

1,289 409 661 1,698 1,519
Fees reported as other income 152 223 26 375 314

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.

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 stock-based awards and deferred compensation (so that the compensation expenses used in the numerator correspond to the adjusted net revenues generated in the periods presented). The adjusted compensation ratio is further adjusted by excluding compensation paid to employees hired in connection with JMP Group's strategic investments in new business initiatives.

A statement of JMP Group's compensation ratio for the quarter and six months ended June 30, 2014, and for comparable prior periods is set forth below.

 

Quarter Ended

  Six Months Ended
($ in thousands) June 30, 2014   Mar. 31, 2014   June 30, 2013 June 30, 2014   June 30, 2013
 
Adjusted net revenues $50,558   $43,989   $37,946   $94,547   $69,922  
 
Compensation and benefits $37,979 $31,376 $24,776 $69,355 $44,381
Subtract/(add back):

Compensation expense - stock option grants

504 395 259 899

396

Compensation expense - post-IPO RSU grants

934 853 704 1,787 1,320

Compensation expense - net deferred compensation

(891 ) (597 ) (1,146 ) (1,488 ) (2,270 )

Unrealized mark-to-market gain - deferred compensation

656   70   113   726   153  
Adjusted compensation and benefits 36,776   30,655   24,846   67,431   44,782  
 
Subtract:

Compensation expense - strategic initiatives

500   610   1,520   1,110   2,770  

Adjusted compensation and benefits, excluding strategic initiatives

$36,276   $30,045   $23,326   $66,321   $42,012  
 

Adjusted ratio of compensation expense to revenues

72.7 % 69.7 % 65.5 % 71.3 % 64.0 %

Adjusted ratio of compensation expense to revenues, excluding strategic initiatives

71.8 % 68.3 % 61.5 % 70.1 % 60.1 %

Company management has utilized compensation ratios, adjusted in the manners described above, to assess JMP Group's personnel expenses as they relate to its revenues for the periods presented. Management believes that adjusted compensation ratios provide useful information by including or excluding certain expenses as a means of representing the company's ongoing personnel costs resulting from its core business activities. Management also believes that compensation ratios are useful measures because they allow and facilitate meaningful comparisons of the company's personnel expenses in a given period to those in prior and future periods.

Operating Net Income

Operating net income is a non-GAAP financial measure that (i) reverses compensation expense related to 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 with regard to other CLOs, (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 six months ended June 30, 2014, and for comparable prior periods is set forth below.

  Quarter Ended   Six Months Ended
(in thousands, except per share amounts)

June 30, 2014

 

Mar. 31, 2014

 

June 30, 2013

June 30, 2014

 

June 30, 2013

 

Net income/(loss) attributable to JMP Group Inc.

$3,195 $3,998 ($1,435 ) $7,193 ($3,154 )
 
Add back:

 

Income tax expense/(benefit) 2,450   1,696   (644 ) 4,146   (1,456 )
Income/(loss) before taxes 5,645 5,694 (2,079 ) 11,339 (4,610 )
 
Add back/(subtract):
Compensation expense - stock options 504 395 259 899 396
Compensation expense - post-IPO RSUs 934 853 704 1,787 1,320

Compensation expense - deferred compensation

(891 ) (597 ) (1,146 ) (1,488 ) (2,270 )

Net amortization of liquidity discounts - JMP Credit Advisors CLO I

- - 6,239 - 14,979

General loan loss provision - collateralized loan obligations

380 545 821 925 821

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

- - - - (162 )

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

- - 772 - 772

Unrealized mark-to-market loss/(gain) - strategic equity investments and warrants

(72 ) 174   (243 ) 102   (86 )
Operating income before taxes 6,500 7,064 5,327 13,564 11,160
 
Income tax expense (assumed rate of 38%) 2,470   2,684   2,024   5,154   4,240  
Operating net income $4,030   $4,380   $3,303   $8,410   $6,920  
 
Operating net income per share:
Basic $0.19 $0.20 $0.15 $0.39 $0.31
Diluted (1) $0.18 $0.19 $0.15 $0.37 $0.30
 
Weighted average shares outstanding:
Basic 21,712 21,820 22,199 21,766 22,402
Diluted (1) 22,901 22,806 22,707 22,778 22,744
 

(1) In 2013 and the first quarter of 2014, JMP Group issued restricted stock units, or RSUs, bearing non-forfeitable dividend equivalent rights. GAAP requires RSUs with non-forfeitable dividend equivalent rights to be included in the diluted share count (without applying the treasury method). Management prefers to present 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 six months ended June 30, 2014, was 23,744,777 and 23,639,612, respectively. Given those denominators, operating net income per diluted share would have instead been $0.17 for the quarter and $0.36 for the six months ended June 30, 2014, 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 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 with regard to other CLOs, (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 June 30, 2014, is set forth below.

  Quarter Ended June 30, 2014
               
Corp. Invest- HGC Consoli-
Broker- Asset Credit Operating ment Corp. Elimin- JMP Consoli- dated JMP
(in thousands, except per share amounts) Dealer Mgmt. Mgmt. Platforms Income Costs ations Group dation Group
 
Revenues:
Investment banking $23,059 - - $23,059 - - $2 $23,061 - $23,061
Brokerage $6,474 - - 6,474 - - - 6,474 - 6,474
Asset management-related fees (1) - $15,461 $1,546 17,007 - - (1,632 ) 15,375 ($367 ) 15,008
Principal transactions (2) - - - - $1,977 - - 1,977 6,983 8,960
Gain on sale and payoff of loans - - - - (551 ) - - (551 ) - (551 )
Net dividend income - - - - 262 - - 262 - 262
Net interest income - - - - 3,791 - - 3,791 (3 ) 3,788
Provision for loan losses - - - - 169   -   -   169   -   169  
Adjusted net revenues 29,533 15,461 1,546 46,540 5,648 - (1,630 ) 50,558 6,613 57,171
 
Expenses:
Non-interest expense/(income) (3) 24,560 14,533 988 40,081 1,466 3,975 (1,632 ) 43,890 60 43,950
 
Less: Non-controlling interest (4) - 73 - 73 92   -   -   165   6,553   6,718  

Operating income/(loss) before taxes

4,973 855 558 6,386 4,090 (3,975 ) 2 6,503 - 6,503
 
Income tax expense/(benefit) 1,890 325 212 2,427 1,554   (1,509 ) 1   2,473   -   2,473  
Operating net income/(loss) $3,083 $530 $346 $3,959 $2,536   ($2,466 ) $1   $4,030   -   $4,030  
 

Operating net income/(loss) per share:

Basic $0.14 $0.02 $0.02 $0.18 $0.12 ($0.11 ) $0.00 $0.19 - $0.19
Diluted (5) $0.13 $0.02 $0.02 $0.17 $0.12 ($0.11 ) $0.00 $0.18 - $0.18
 

(1) 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.

 

(2) Reverses net unrealized gains and losses on strategic equity investments and warrants. Excludes non-controlling interests in net realized and unrealized gains totaling $7.0 million that are recognized upon consolidation of two Harvest Growth Capital funds.

 

(3) Reverses stock-based compensation expense as well as accounting adjustments related to deferred compensation expense and excludes fund-related expenses totaling $61,000 that are recognized upon consolidation of two Harvest Growth Capital funds.

 

(4) Excludes non-controlling interests totaling $6.6 million in the net realized and unrealized gains of two Harvest Growth Capital funds that are recognized upon consolidation of the entities.

 

(5) In 2013 and the first quarter of 2014, JMP Group issued restricted stock units, or RSUs, bearing non-forfeitable dividend equivalent rights. GAAP requires RSUs with non-forfeitable dividend equivalent rights to be included in the diluted share count (without applying the treasury method). Management prefers to present 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 June 30, 2014, was 23,744,777; given that denominator, operating net income per diluted share would have been $0.17.

A statement of JMP Group's operating net income on a segment basis for the six months ended June 30, 2014, is set forth below.

  Six Months Ended June 30, 2014
                 
Corp. Invest- HGC Consoli-
Broker- Asset Credit Operating ment Corp. Elimin- JMP Consoli- dated JMP
(in thousands, except per share amounts) Dealer Mgmt. Mgmt. Platforms Income Costs ations Group dation Group
 
Revenues:
Investment banking $48,202 - - $48,202 - - ($88 ) $48,114 - $48,114
Brokerage 13,130 - - 13,130 - - - 13,130 - 13,130
Asset management-related fees (1) 50 $21,685 $2,607 24,342 - - (2,822 ) 21,520 ($746 ) 20,774
Principal transactions (2) - - - - $3,667 - - 3,667 1,704 5,371
Gain on sale and payoff of loans - - - - (171 ) - - (171 ) - (171 )
Net dividend income - - - - 497 - - 497 - 497
Net interest income - - - - 7,568 - - 7,568 (20 ) 7,548
Provision for loan losses - -   - -   222   -   -   222   -   222  
Adjusted net revenues 61,382 21,685 2,607 85,674 11,783 - (2,910 ) 94,547 938 95,485
 
Expenses:
Non-interest expense/(income) (3) 49,876 20,914 2,012 72,802 2,826 8,214 (2,822 ) 81,020 103 81,123
 
Less: Non-controlling interest (4) - (283 ) - (283 ) 242   -   -   (41 ) 835   794  

Operating income/(loss) before taxes

11,506 1,054 595 13,155 8,715 (8,214 ) (88 ) 13,568 - 13,568
 
Income tax expense/(benefit) 4,372 401   226 4,999   3,312   (3,120 ) (33 ) 5,158   -   5,158  
Operating net income/(loss) $7,134 $653   $369 $8,156   $5,403   ($5,094 ) ($55 ) $8,410   -   $8,410  
 

Operating net income/(loss) per share:

Basic $0.33 $0.03 $0.02 $0.37 $0.25 ($0.23 ) ($0.00 ) $0.39 - $0.39
Diluted (5) $0.31 $0.03 $0.02 $0.36 $0.24 ($0.23 ) ($0.00 ) $0.37 - $0.37
 

(1) Reflects revenues detailed in section above titled "Asset Management-Related Fee Revenues;" management fees of $0.7 million are eliminated upon consolidation of two Harvest Growth Capital funds.

 

(2) Reverses net unrealized gains and losses on strategic equity investments and warrants. Excludes non-controlling interests in net realized and unrealized gains totaling $1.7 million that are recognized upon consolidation of two Harvest Growth Capital funds.

 

(3) Reverses stock-based compensation expense as well as accounting adjustments related to deferred compensation expense and excludes fund-related expenses totaling $103,000 that are recognized upon consolidation of two Harvest Growth Capital funds.

 

(4) Excludes non-controlling interests totaling $0.8 million in the net realized and unrealized gains of two Harvest Growth Capital funds that are recognized upon consolidation of the entities.

 

(5) In 2013 and the first quarter of 2014, JMP Group issued restricted stock units, or RSUs, bearing non-forfeitable dividend equivalent rights. GAAP requires RSUs with non-forfeitable dividend equivalent rights to be included in the diluted share count (without applying the treasury method). Management prefers to present 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 six months ended June 30, 2014, was 23,639,612; given that denominator, operating net income per diluted share would have been $0.36.

Book Value per Share

At June 30, 2014, JMP Group's tangible book value per share was $6.16, as set forth below.

(in thousands, except per share amounts)   June 30, 2014   Mar. 31, 2014   June 30, 2013
 
Total JMP Group stockholders' equity $133,593 $130,373 $121,120
Less: Goodwill and intangible assets - - -
Tangible stockholders' equity $133,593 $130,373 $121,120
Tangible book value per share $6.16 $5.97 $5.47
Basic shares outstanding 21,690 21,833 22,138
 
Quarterly operating ROTE (1) 13.5% 13.6% 10.7%
LTM operating ROTE (1) 12.2% 11.4% 12.9%
 

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

Share Repurchase Activity

During the quarter ended June 30, 2014, JMP Group repurchased 205,912 shares of its common stock at an aggregate price of approximately $1.3 million, or $6.47 per share. At quarter-end, approximately 0.9 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, 2013, as filed with the Securities and Exchange Commission on March 13, 2014, 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, 2013 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 Friday, July 25, 2014. To participate in the call, dial (888) 566-6060 (domestic) or (973) 200-3100 (international). The conference identification number is 77141806.

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 an investment banking and asset management firm that provides investment banking, sales and trading, and equity research services to corporate and institutional clients as well as alternative asset management products and services 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)   June 30, 2014   Dec. 31, 2013
 
Assets
 
Cash and cash equivalents $49,603 $65,906
Restricted cash and deposits 97,156 68,029
Marketable securities owned, at fair value 36,842 29,295
Other investments 190,349 161,773

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

815,671 727,270
Deferred tax assets 8,959 12,492
Other assets 50,528 57,166
Total assets $1,249,108 $1,121,931
 
Liabilities and Stockholders' Equity
 
Liabilities:
Marketable securities sold, but not yet purchased, at fair value $24,669 $13,749
Accrued compensation 40,615 51,347
Asset-backed securities issued 710,104 716,423
Note payable - 15,000
Line of credit 691 2,895
Warehouse credit facility - JMP Credit Advisors CLO III 97,510 -
Bond payable 94,300 46,000
Deferred tax liability 4,295 3,625
Other liabilities 35,263 35,652
Total liabilities 1,007,447 884,691
 
Stockholders' Equity:
Total JMP Group Inc. stockholders' equity 133,593 126,385
Non-redeemable non-controlling interest 108,068 110,855
Total equity 241,661 237,240
Total liabilities and stockholders' equity $1,249,108 $1,121,931
 

JMP GROUP INC.

Consolidated Statements of Operations

(Unaudited)

 
  Quarter Ended   Six Months Ended
(in thousands, except per share amounts) June 30, 2014   June 30, 2013 June 30, 2014   June 30, 2013
 
Revenues:
Investment banking $23,061 $21,057 $48,114 $33,164
Brokerage 6,474 6,980 13,130 12,174
Asset management fees 14,858 3,527 20,402 10,278
Principal transactions 9,688 2,292 5,995 4,209
Loss/(gain) on sale, payoff and mark-to-market of loans (551 ) 336 (171 ) 1,425
Net dividend income 262 55 497 47
Other income 150   26   372   314  
Non-interest revenues 53,942   34,273   88,339   61,611  
 
Interest income 9,212 7,711 17,800 15,869
Interest expense (5,424 ) (10,105 ) (10,252 ) (21,404 )
Net interest income/(expense) 3,788   (2,394 ) 7,548   (5,535 )
 
Provision for loan losses (212 ) (975 ) (709 ) (1,924 )
Total net revenues 57,518   30,904   95,178   54,152  
 
Non-interest expenses:
Compensation and benefits 37,979 24,776 69,355 44,381
Administration 1,760 4,005 3,482 5,336
Brokerage, clearing and exchange fees 818 1,025 1,743 1,912
Travel and business development 980 1,039 1,831 1,997
Communications and technology 942 832 1,890 1,685
Occupancy 851 808 1,676 1,612
Professional fees 1,269 812 2,076 1,836
Depreciation 227 238 454 464
Other 330   224   542   307  
Total non-interest expense 45,156   33,759   83,049   59,530  
 
Net income/(loss) before income tax expense 12,362 (2,855 ) 12,129 (5,378 )
Income tax expense/(benefit) 2,450   (644 ) 4,146   (1,456 )
Net income/(loss) 9,912 (2,211 ) 7,983 (3,922 )

Less: Net income/(loss) attributable to noncontrolling interests

6,717   (776 ) 790   (768 )
Net income/(loss) attributable to JMP Group Inc. $3,195   ($1,435 ) $7,193   ($3,154 )
 

Net income/(loss) attributable to JMP Group Inc. per share:

Basic $0.14 ($0.06 ) $0.31 ($0.14 )
Diluted $0.13 ($0.06 ) $0.30 ($0.14 )
 
Weighted average common shares outstanding:
Basic 21,712 22,199 21,766 22,402
Diluted 23,745 22,199 23,640 22,402

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

Source: JMP Group Inc.

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