JMP GROUP LLC
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read together with the
unaudited consolidated financial statements and the related notes included
elsewhere in this report. For additional context with which to understand our
financial condition and results of operations, see the MD&A for the fiscal year
ended December 31, 2020 contained in our Form 10-K for the year ended December
31, 2020 , filed with the Securities and Exchange Commission on March 29,
2021 (the "Annual Report"), as well as the consolidated financial statements and
notes contained therein.
Cautionary Statement Regarding Forward-Looking Statements
This MD&A and other sections of this Form 10-Q (the "Quarterly Report") contain forward looking statements. The Company makes forward-looking statements, as defined by the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and in some cases you can identify these statements by forward-looking words such as "if," "shall," "may," "might," "will likely result," "should," "expect," "plan," "anticipate," "believe," "estimate," "project," "intend," "goal," "objective," "predict," "potential" or "continue," the negative of these terms, and other comparable terminology. These forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events that the Company believes to be reasonable. There are or may be important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the historical or future results, level of activity, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption "Risk Factors" in our Annual Report. In preparing this MD&A, the Company presumes that readers have access to and have read the MD&A in our Annual Report, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.The Company undertakes no duty to update any of these forward-looking statements after the date of filing of this Quarterly Report to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law. Overview
• investment banking services, including corporate finance, mergers and
acquisitions and other strategic advisory services, to corporate clients;
• sales and trading and related securities brokerage services to institutional
investors;
• equity research coverage of three target industries;
• asset management products and services to institutional investors, high
net-worth individuals and for our own account; and
• management of collateralized loan obligations (through
specialty finance company.
Operating Results
A summary of the Company's operating results for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except per share amounts) 2021 2020 2021 2020
Total net revenues $ 48,492 $ 29,993 $ 86,985 $ 35,260
Net income/(loss) attributable to JMP
Group 3,628 1,124 4,717 (10,624 )
Net income/(loss) attributable to JMP
Group per share 0.18 0.06 0.24 (0.54 )
Operating Net Income/(Loss)* 6,129 2,591 9,913 2,054
Operating Net Income/(Loss) per share* 0.29 0.13 0.47 0.10
* Operating Net Income (Loss) is a non-GAAP measure. See the section titled
Operating Net Income (Non-GAAP Financial Measure) for more information about
this non-GAAP measure, including a reconciliation to net income (loss). Recent Developments OnJanuary 30, 2020 , the spread of novel coronavirus ("COVID-19") was declared a Public Health Emergency of International Concern by theWorld Health Organization ("WHO"). Subsequently, onMarch 11, 2020 ,WHO characterized the COVID-19 outbreak as a pandemic. InMarch 2020 , theU.S. equities market saw sharp declines and extreme volatility in reaction to the COVID-19 pandemic. In the second quarter of 2020, unprecedented fiscal and monetary stimuli by theU.S. government spurred a sharp recovery inU.S. equity prices. TheU.S. equities market continued to recover from the impact of the COVID-19 pandemic during the second half of 2020. The Company's equity capital markets and brokerage revenues directly benefited from the improved capital market condition. We continue to closely monitor the status of the COVID-19 pandemic and its impact on our business, the economy and capital markets globally. An economic recession could have a material adverse effect on our business, financial condition, results of operations, or cash flows. While we are optimistic that the equity market could remain active through year-end, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our business in the remainder of 2021 and beyond. InFebruary 2020 ,Medalist Partners Corporate Finance LLC ("MPCF") completed the securitization ofMedalist Partners Corporate Finance CLO VI Ltd upon which the related CLO VI warehouse was liquidated. The Company does not hold any subordinated notes ofMedalist Partners Corporate Finance CLO VI Ltd. OnJune 9, 2021 ,HCC and Portman Ridge Finance Corporation ("PTMN") closed a merger transaction pursuant to which HCC merged with and into PTMN, a business development company managed bySierra Crest Investment Management LLC ("Sierra Crest"), an affiliate ofBC Partners Advisors L.P. In connection with the merger, the Company received aggregate consideration totalin g$9.5 million and recorded a realized gain o f$0.1 million . The Company's subsidiaryHCAP Advisors provided investment advisory services to HCC and in connection with the merger, Sierra Crest andHCAP Advisors have agreed to a transition services agreement pursuant to whichHCAP Advisors will provide certain consulting services to Sierra Crest relating to HCC's investment portfolio. Under the transition services agreement,HCAP Advisors is expected to earn$3.9 million in total through the three-year period commencing on the merger date. InJune 2021 , the Company sold its existing 45.0% ownership interest inMedalist Partners Corporate Finance LLC . The Company received a$1.5 million upfront cash payment, canceled its previous fee-sharing agreement, and entered into a new fee sharing agreement, in which the Company will retain an interest to receive 20 basis points of the total 35 basis points in subordinated management fees fromJMP Credit Advisors CLO IV Ltd. AndJMP Credit Advisors CLO V Ltd. The Company recognized a realized gain of$1.4 million on this transaction. 31 --------------------------------------------------------------------------------
Results of Operations The following table sets forth our results of operations for the three and six months endedJune 30, 2021 and 2020, and is not necessarily indicative of the results to be expected for any future period. Three Month Change From 2020 Six Month Change From 2020 to (In thousands) Three Months Ended June 30, Six Months Ended June 30, to 2021 2021 2021 2020 2021 2020 $ % $ % Revenues Investment banking$ 32,713 $ 21,595 $ 65,282 $ 36,220 $ 11,118 51.5 %$ 29,062 80.2 % Brokerage 3,391 5,645 9,296 9,832 (2,254 ) -39.9 % (536 ) -5.5 % Asset management fees 11,101 1,712 13,270 3,428 9,389 548.4 % 9,842 287.1 % Principal transactions (49 ) (48 ) (3,260 ) (17,600 ) (1 ) 2.1 % 14,340 -81.5 % Net dividend income 215 10 215 237 205 2050.0 % (22 ) -9.3 % Other income 1,127 912 1,943 1,847 215 23.6 % 96 5.2 % Non-interest revenues 48,498 29,826 86,746 33,964 18,672 62.6 % 52,782 155.4 % Interest income 1,754 1,890 3,855 4,104 (136 ) -7.2 % (249 ) -6.1 % Interest expense (1,489 ) (1,723 ) (3,057 ) (3,505 ) 234 -13.6 % 448 -12.8 % Net interest income 265 167 798 599 98 58.7 % 199 33.2 % (Loss) gain on repurchase, reissuance, or early retirement of debt (271 ) - (559 ) 697 (271 ) -100.0 % (1,256 ) -180.2 % Total net revenues 48,492 29,993 86,985 35,260 18,499 61.7 % 51,725 146.7 % Non-interest expenses Compensation and benefits 35,146 22,386 65,091 38,599 12,760 57.0 % 26,492 68.6 % Administration 1,941 1,067 3,432 3,289 874 81.9 % 143 4.3 % Brokerage, clearing and exchange fees 644 647 1,324 1,281 (3 ) -0.5 % 43 3.4 % Travel and business development 215 54 282 976 161 298.1 % (694 ) -71.1 % Managed deal expenses 1,354 950 2,752 1,538 404 42.5 % 1,214 78.9 % Communications and technology 1,160 1,085 2,267 2,214 75 6.9 % 53 2.4 % Occupancy 1,173 1,194 2,371 2,393 (21 ) -1.8 % (22 ) -0.9 % Professional fees 1,394 731 2,221 1,621 663 90.7 % 600 37.0 % Depreciation 265 397 540 945 (132 ) -33.2 % (405 ) -42.9 % Other (loss) 250 208 208 208 42 20.2 % 0 0.0 % Total non-interest expenses 43,542 28,719 80,488 53,064 14,823 51.6 % 27,424 51.7 % Net income (loss) before income taxes 4,950 1,274 6,497 (17,804 ) 3,676 288.5 % 24,301 -136.5 % Income tax expense (benefit) 1,307 176 1,686 (7,063 ) 1,131 642.6 % 8,749 -123.9 % Net income (loss) 3,643 1,098 4,811 (10,741 ) 2,545 231.8 % 15,552 -144.8 % Less: Net income (loss) attributable to non-controlling interest 15 (26 ) 94 (117 ) 41 -157.7 % 211 -180.3 % Net income (loss) attributable to JMP Group LLC$ 3,628 $ 1,124 $ 4,717 $ (10,624 ) $ 2,504 222.8 %$ 15,341 -144.4 % 32
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Operating Net Income (Non-GAAP Financial Measure)
Management uses Operating Net Income as a key, non-GAAP metric when evaluating the performance ofJMP Group LLC's core business strategy and ongoing operations, as management believes that this metric appropriately illustrates the operating results ofJMP Group LLC's core operations and business activities. Operating Net Income is derived from our segment reported results and is the measure of segment profitability on an after-tax basis used by management to evaluate our performance. This non-GAAP measure is presented to enhance investors' overall understanding of the Company's current financial performance. Additionally, management believes that Operating Net Income is a useful measure because it allows for a better evaluation of the performance ofJMP Group LLC's ongoing business and facilitates a meaningful comparison of the Company's results in a given period to those in prior and future periods. However, Operating Net Income 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, unless otherwise indicated, the adjustments concern gains, losses or expenses thatJMP Group LLC generally expects to continue to recognize, and the adjustment of these items should not always be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring. Therefore, management believes that bothJMP Group LLC's GAAP measures of its financial performance and the respective non-GAAP measures should be considered together. Operating Net Income may not be comparable to a similarly titled measure presented by other companies.
Operating Net Income is a non-GAAP financial measure that adjusts the Company's GAAP net income as follows:
(i) reverses compensation expense recognized under GAAP related to equity
awards;
(ii) recognizes 100% of the cost of deferred compensation in the period for
which such compensation was awarded, instead of recognizing such cost
over the vesting period as required under GAAP, in order to matchcompensation expense with the actual period upon which the compensation
was based;
(iii) reverses amortization expense related to an intangible asset resulting
from the repurchase of a portion of the equity of CLO III prior to March
31, 2019 ;
(iv) unrealized gains or losses on commercial real estate investments,
adjusted for non-cash expenditures, including depreciation and
amortization;
(v) reverses net unrealized gains and losses on strategic equity investments
and warrant positions;
(vi) reverses impairment of CLO debt securities recognized in principal
transaction revenues, as the Company believes that the forecasted
reduction in future cash flows will be mitigated by a change in the
interest rate environment and that distributions will be larger than
currently projected;
(vii) reverses the one-time transaction costs related to the refinancing or
repurchase of the debt;
(viii) includes a combined federal, state and local income tax rate of 26% at
the consolidated taxable parent company, JMP Group LLC ;
(ix) removes any non-controlling interest in consolidated but less than wholly
owned subsidiaries; and
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Discussed below is our Operating Net Income by segment. This information is reflected in a manner utilized by management to assess the financial operations of the Company's various business lines.
Three Months Ended June 30, 2021
(In thousands) Broker-Dealer Asset Management Corporate Costs Eliminations Total Segments
Asset
Management Fee Investment Total Asset
Income Income Management
Revenues
Investment banking $ 32,713 $ - $ - $ - $ - $ - $ 32,713
Brokerage 3,391 - - - - - 3,391
Asset management related fees 93 11,628
491 12,119 - (25 ) 12,187
Principal transactions 167 - 3,086 3,086 - - 3,253
Net interest income - - 290 290 - - 290
Net dividend income - - 215 215 - - 215
Adjusted net revenues 36,364 11,628 4,082 15,710 - (25 ) 52,049
Non-interest expenses 31,970 8,940 352 9,292 2,529 (25 ) 43,766
Operating pre-tax net income (loss) 4,394 2,688 3,730 6,418 (2,529 ) - 8,283
Income tax expense (benefit) 1,142 699 971 1,670 (658 ) - 2,154
Operating net income (loss) $ 3,252 $ 1,989 $ 2,759 $ 4,748 $ (1,871 ) $ - $ 6,129
Three Months Ended June 30, 2020
(In thousands) Broker-Dealer Asset Management Corporate Costs Eliminations Total Segments
Asset
Management Fee Investment Total Asset
Income Income Management
Revenues
Investment banking $ 21,595 $ - $ - $ - $ - $ - $ 21,595
Brokerage 5,645 - - - - - 5,645
Asset management related fees 7 1,941 379 2,320 - (42 ) 2,285
Principal transactions 458 - 1,809 1,809 - - 2,267
Net dividend income - - 49 49 - - 49
Net interest income - - 192 192 - - 192
Adjusted net revenues 27,705 1,941 2,429 4,370 - (42 ) 32,033
Non-interest expenses 24,045 2,144 303 2,447 2,082 (42 ) 28,532
Operating pre-tax net income (loss) 3,660 (203 ) 2,126 1,923 (2,082 ) - 3,501
Income tax expense (benefit) 951 (53 ) 553 500 (541 ) - 910
Operating net income (loss) $ 2,709 $ (150 )$ 1,573 $ 1,423 $ (1,541 ) $ - $ 2,591 34
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Six Months Ended June 30, 2021
(In thousands) Broker-Dealer Asset Management Corporate Costs Eliminations Total Segments
Asset
Management Fee Investment Total Asset
Income Income Management
Revenues
Investment banking $ 65,282 $ - $ - $ - $ - $ - $ 65,282
Brokerage 9,296 - - - - - 9,296
Asset management related fees 114 13,802
843 14,645 - (50 ) 14,709
Principal transactions (277 ) - 4,196 4,196 - - 3,919
Net interest income - - 848 848 - - 848
Net dividend income - - 215 215 - - 215
Adjusted net revenues 74,415 13,802 6,102 19,904 - (50 ) 94,269
Non-interest expenses 64,278 11,147 649 11,796 4,849 (50 ) 80,873
Operating pre-tax net income (loss) 10,137 2,655 5,453 8,108 (4,849 ) - 13,396
Income tax expense (benefit) 2,635 691 1,418 2,109 (1,261 ) - 3,483
Operating net income (loss) $ 7,502 $ 1,964 $ 4,035 $ 5,999 $ (3,588 ) $ - $ 9,913
Six Months Ended June 30, 2020
(In thousands) Broker-Dealer Asset Management Corporate Costs Eliminations Total Segments
Asset
Management Fee Investment Total Asset
Income Income Management
Revenues
Investment banking $ 36,220 $ - $ - $ - $ - $ - $ 36,220
Brokerage 9,832 - - - - - 9,832
Asset management related fees 159 3,844 712 4,556 - (87 ) 4,628
Principal transactions 487 - 1,861 1,861 - - 2,348
Net dividend income - - 305 305 - - 305
Net interest income - - 650 650 - - 650
Gain on repurchase, reissuance
or early retirement of debt - - 786 786 - - 786
Adjusted net revenues 46,698 3,844 4,314 8,158 - (87 )
54,769
Non-interest expenses 43,246 4,506 454 4,960 3,874 (87 )
51,993
Operating pre-tax net income (loss) 3,452 (662 ) 3,860 3,198 (3,874 ) -
2,776
Income tax expense (benefit) 889 (173 ) 1,012 839 (1,007 ) -
721
Operating net income (loss) $ 2,563 $ (489 ) $
2,848 $ 2,359 $ (2,867 ) $ - $ 2,055
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The following table reconciles consolidated net income (loss) attributable toJMP Group LLC to total Operating Net Income (Loss) for the three and six months endedJune 30, 2021 and 2020.
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