JMP Group Inc. Q1 2010 Earnings Call Transcript

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JMP Group Inc. (JMP)

Q1 2010 Earnings Conference Call

April 28, 2010 10:00 AM ET

Executives

Andrew Palmer – IR

Joe Jolson – Chairman and CEO

Ray Jackson – CFO

Mark Lehmann – Co-President, JMP Securities

Carter Mack – Co-President, JMP Securities

Analysts

Devin Ryan - Sandler O'Neill

Lauren Smith – KBW

Presentation

Operator

Good morning everyone and welcome to JMP Group’s first quarter 2010 earnings conference call. Today’s call is being recorded. All lines have been placed on mute. (Operator Instructions)

At this time, I would like to turn the conference over to Andrew Palmer, JMP Group’s Head of Investor Relations. Please go ahead.

Andrew Palmer

Thank you, good morning, and welcome to JMP Group’s first quarter 2010 conference call. On the line with me this morning is Joe Jolson, JMP Group’s Chairman and Chief Executive Officer as well as Ray Jackson, the company’s Chief Financial Officer. We are joined by Craig Johnson, President of JMP Group and Carter Mack and Mark Lehmann, Co-Presidents of the JMP Securities.

Before I turn the call over to Joe, I would like to remind you that some of the comments made this morning may contain forward-looking statements about future events that by their nature are uncertain and outside of the JMP Group’s control. Actual results may differ materially from those indicated or implied in any forward-looking statements.

For a discussion of some of the risks and uncertainties that could affect JMP Group’s future performance, please see the description of risk factors included in JMP’s most recent 10-K.

With that, I give your Chairman and CEO Joe Jolson.

Joe Jolson

Thanks, Andrew and thanks to everyone listening in this morning and for your interest in our company. We had mixed results in the first quarter but nonetheless managed to generate $0.10 share in operating net income. Thanks to the diversification of our business model and to our more variable incentive compensation structure.

Given our robust investment banking pipeline that we discussed at the last call going into 2010, we were somewhat disappointed by the lack of revenue throughput in the first quarter. Thanks to a slowdown in the U.S. equity capital market activity. Thus far in the second quarter we have been involved in quite a few capital raising and strategic advisory transactions and we remain optimistic about our momentum in that business.

Continuing the trend from the past few quarters, institutional equities trading volume has also been subdued during the March period. Offsetting these shortfalls was another solid performance of JMP Credit and continued progress at Harvest Capital Strategies. We continue to anticipate reduced net investment income in 2010 and 2011 as JMP Credit reinvests the cash proceeds from sales and payoffs of loans that we acquired at distressed prices a year ago in the current, more normalized pricing environment. Nevertheless, we hope to offset much of the decline with earnings growth at our other operating businesses which have benefitted from our decision 18 months ago to spend some earnings to build them out during the down cycle.

JMP Group will continue to invest in people and platforms in 2010 and we remain hopeful for an acceleration in topline growth in 2011 and beyond.

That said I have Ray take you through the rest of the actual numbers for the quarter. Ray?

Ray Jackson

Thanks, Joe. First quarter net revenues were $25.2 million compared to $24.2 million a year ago. As Joe mentioned, first quarter operating net income was $2.2 million or $0.10 per diluted share compared to $0.6 million or $0.03 per diluted share for the first quarter of 2009. Operating net income excludes compensation expense related to the grant of restricted stock units at our IPO and assumes an effective tax rate of 42%. GAAP net income for the quarter was $1.7 million or $0.08 per share while it was just $34,000 or $0.00 per share a year earlier.

Investment banking revenues were $5.5 million, up 33% from $4.1 million for the first quarter of 2009.

Public equity underwriting revenues were $2.7 million for 2009; private placement revenues were $0.4 million; and strategic advisory were $2.4 million. In total, JMP executed 10 investment banking transactions during the quarter versus six a year before.

As for sales and trading, net brokered revenues were $7.7 million, down 10% from $8.5 million for the first quarter of 2009, which is indicative of the industry-wide decline in institutional equity trading volumes that has affected the majority of IPOs. However it’s worth noting that our brokered revenues have historically been the lowest in the first quarter of each year, which is not the case for our largest competitors.

Asset management related fee revenues were $3.4 million for the quarter, down 61% from $8.7 million a year ago. Base management fees increased to $2.3 million from $2 million for the first quarter of 2009, though incentive fees dropped sharply to $0.6 million from $6.5 million. Other asset management fees doubled to $2.5 million.

Client assets under management at March 31st equaled $1.1 billion compared to $1.1 billion at December 31st and $502 million at March 31st, 2009.

Principal transactions generated net revenues of $1.4 million versus $2.9 million for the first quarter of last year. In addition, JMP Credit Corporation realized gains of $3.5 million from the payoff or sale of 11 of the loans in its portfolio. A loan loss provision of $0.2 million was recorded for the quarter as a pooled reserve against performing loans at JMP Credit.

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