Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (11-20-08 03:18 AM)

JMP Group Inc. CEO Joseph A Jolson bought 54000 shares on 11-10-2008 at $4.45

BUSINESS OVERVIEW

Overview

We are 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 and services to institutional investors and high net-worth individuals.

We focus our efforts on small and middle-market companies in the following six growth industries: business services, consumer, financial services, healthcare, real estate, and technology. Our specialization in these areas has enabled us to develop recognized expertise and to cultivate extensive industry relationships. As a result, we have established our firm as a key advisor for our corporate clients, a trusted resource for institutional investors, and an effective investment manager for our asset management clients. We currently serve clients nationwide from our headquarters in San Francisco and from additional offices in New York, Boston, Chicago and Atlanta.

We provide our corporate clients with a wide variety of services, including strategic advice and capital raising solutions, sales and trading support, and equity research coverage. We provide institutional investors with capital markets intelligence and objective, informed investment recommendations about individual equities that are not widely followed. We believe that our concentration on small and middle-market companies, as well as our broad range of product offerings, positions us as a leader in an underserved and high-growth market.

The selection of our six target industries, the development of multiple products and services and the establishment of our three revenue-producing business lines—investment banking, sales and trading, and asset management—has created a diversified business model, especially when compared to that of our more specialized competitors. We have been able to balance more volatile revenue streams derived from our investment banking business and our incentive-based asset management fees with the more stable revenue streams tied to sales and trading commissions and base asset management fees. In addition, our target industries have historically performed, in certain respects, counter-cyclically to one another, allowing us to win business and generate fees in various economic and capital markets conditions.

Principal Business Lines

We operate our principal business lines through two subsidiaries, JMP Securities LLC, an SEC-registered broker-dealer and member of the Financial Industry Regulatory Authority (“FINRA”), and JMP Asset Management LLC, an SEC-registered investment adviser.

JMP Securities provides equity research, sales and trading to institutional brokerage clients and capital raising and strategic advisory services to corporate clients. As of December 31, 2007, JMP Securities had 183 full-time employees, including 38 in equity research, 54 in sales and trading, 62 in investment banking and 29 in operations and administration.

JMP Asset Management is an alternative asset manager that actively manages a family of four hedge funds, two funds of hedge funds and an externally advised REIT. On December 31, 2007, the fifth hedge fund in our family of hedge funds, was liquidated and its assets distributed to its partners. As of December 31, 2007, JMP Asset Management had 19 full-time employees.

Investment Banking

Our investment banking professionals provide capital raising, mergers and acquisitions transaction and other strategic advisory services to corporate clients. Dedicated industry coverage groups serve each of our six target industries, enabling our investment bankers to develop expertise in specific markets and to form close relationships with corporate executives, private equity investors, venture capitalists and other key industry participants. We offer our clients a high level of attention from senior personnel and have designed our organizational structure so that the investment bankers who are responsible for securing and maintaining client relationships also actively participate in providing all related transaction execution services to those clients.

By focusing consistently on our target sectors—business services, consumer, financial services, healthcare, real estate, and technology—we have developed a comprehensive understanding of the unique challenges and demands involved in executing corporate finance and strategic advisory assignments in these sectors. A significant portion of our corporate finance revenues is earned from small and mid-capitalization public companies, and the balance is earned from private companies. Some of our clients retain us for our advisory and capital raising capabilities during an accelerated growth phase as a private company and then continue to work with us through an initial public offering or company sale process. We maintain exceptional client focus both during and following a transaction, leading to a true advisory relationship and a pattern of assisting companies with multiple transactions.

From our inception in 1999 through December 31, 2007, we completed 325 investment banking transactions with an aggregate value of $33.9 billion, including 168 public securities offerings raising $23.5 billion, 76 private securities offerings raising $3.0 billion, and 81 merger and acquisitions or strategic advisory engagements with an aggregate value of $7.4 billion.

Corporate Finance

We assist our publicly traded and privately held corporate clients with capital raising activities, which include the underwriting of a wide range of securities, including common, preferred and convertible securities. Our public equity underwriting capabilities include initial public offerings and marketed and overnight follow-on equity offerings. We also act as an agent in private placements of equity and debt securities and arrange private investments in public equity (“PIPE”) transactions as well as privately negotiated, registered direct stock offerings on behalf of our public company clients. We typically place securities with our client base of institutional investors, private equity and venture capital funds and high net-worth individuals.

Because our corporate clients are generally high-growth companies, they are frequently in need of new capital. Many of our client relationships develop early, when a client company is still private, in which case we may facilitate private placements of the clients’ securities. Thereafter, if our client prepares for an initial public offering, we are generally considered to act as an underwriter of that stock offering. Our ability to structure innovative private offerings and to identify the likely buyers of such offerings makes us a valuable advisor for many small and middle-market companies, as does our industry specialization. We expect that, while the environment for initial public offerings may not be consistently favorable in the future, we should be able to depend on follow-on offerings, PIPEs and registered direct offerings to continue to generate corporate finance revenues.

Mergers and Acquisitions and Other Strategic Advisory

We work with corporate clients on a broad range of key strategic matters, including mergers and acquisitions, divestitures and corporate restructurings, strategic partnerships and joint ventures, hostile takeover defense strategies, valuations of businesses and assets, and fairness opinions and special committee assignments. Because we serve clients at various stages of their corporate development—from emerging growth companies to mature private and public companies—the values of these transactions range in size.



We provide our advice to management teams and boards of directors of client companies in connection with transactions that typically are of significant strategic and financial importance to these companies. We believe that our success as a strategic advisor stems from our ability to structure and execute complex transactions that create long-term stockholder value.

Because of our focus on innovative and fast-growing companies, we are most often an advisor in company sale transactions, although we are taking steps to create an equilibrium between representing corporate clients as buyers and sellers. We believe that our position as a lead manager or senior co-manager of public and private equity offerings will facilitate the growth of our mergers and acquisitions and strategic advisory businesses, as companies that have been issuers of securities become more mature and pursue acquisitions or other exit events for their investors.

Sales and Trading

Our sales and trading operation distributes our equity research product and communicates our proprietary investment recommendations to our growing base of institutional investors. In addition, our sales and trading staff executes equity trades on behalf of our clients and sells the securities of companies for which we act as an underwriter.

We have established a broad institutional client base characterized by longstanding relationships, which have been developed through a consistent focus on the investment and trading objectives of our clients. Our sales and trading professionals work closely with our equity research staff to provide insight and differentiated investment advice to more than 500 institutional clients nationwide.

We believe that our sales and trading clients turn to us for timely, differentiated investment advice. Our equity research features proprietary themes and actionable ideas about industries and companies that are not widely evaluated by many other investment banks without our middle-market emphasis. In recent years, many investment banks have reduced equity research coverage and market making activities for companies with market capitalizations below certain thresholds. However, we continue to commit research and sales and trading resources to smaller-capitalization companies with the belief that institutional investors will value such specialized knowledge and service.

Our sales and trading personnel are also central to our ability to market equity offerings and provide after-market support. Our equity capital markets group manages the syndication, marketing, execution and distribution of equity offerings. Our syndicate activities include managing the marketing and order-taking process for underwritten transactions and conducting after-market stabilization and initial market making. Our syndicate staff is also responsible for developing and maintaining relationships with the syndicate departments of other investment banks. Our corporate and venture services group manages share repurchase programs, structured buying and selling programs, and sales of restricted securities for corporate clients and financial sponsors.

Equity Research

Our research department is charged with developing proprietary investment themes, anticipating secular and cyclical changes, and producing action-oriented reports that will assist our clients with their investment decisions. Our analysts cultivate primary sources of information in order to refine their quantitative and qualitative assessments. Our objective is to provide clients with a clear understanding of industry-specific and company-specific issues that can impact their portfolio returns.

During their careers, a number of our analysts have received industry recognition for the quality of their research and their stock picking ability, ranking high in polls conducted by the Wall Street Journal, Forbes/StarMine and Greenwich Associates. While many larger firms have restructured their research departments due to economic and regulatory pressures and have significantly reduced coverage of companies below certain market-capitalization thresholds, we continue to devote the majority of our resources to smaller-capitalization companies. The number of investment funds and the total assets under management committed to small-cap and mid-cap stocks has grown considerably during the last decade. However, managers of these funds are now presented with fewer sources of independent investment research. We continue to provide objective investment recommendations on small and middle-market companies, and we believe that our institutional investor clients depend on us for this informed, fundamental research.

Asset Management

Through JMP Asset Management, we actively manage a family of four hedge funds, two funds of hedge funds and an externally advised REIT. On December 31, 2007, the fifth hedge fund in our family of hedge funds, Harvest Value Income Plus, was liquidated and its assets distributed to its partners. As of December 31, 2007, we had a total of $237.3 million in client assets under management (including assets of employees and portfolio managers) and had an additional $38.1 million of our own capital invested in these vehicles. In addition, we had invested $12.3 million of our own capital in a portfolio of equity securities managed by JMP Asset Management and $2.3 million in funds managed by third parties.

The objective of our multiple strategies is to diversify both revenue and risk while maintaining the attractive economics of the alternative asset model. We view asset management as an attractive business due to its high margins and the recurring nature of its fee-based revenues as well as its dependence on intellectual capital, which we believe is less susceptible to competitive threats from larger financial institutions.

The following table represents certain information regarding the investment returns, net asset values and fee structures of the hedge funds, funds of hedge funds and REIT managed by JMP Asset Management as of December 31, 2007.


CEO BACKGROUND

Joseph A. Jolson , age 49, co-founded JMP Group in 1999, and is our Chief Executive Officer, the Chairman of the Board of Directors, and a member of our Executive Committee. Mr. Jolson has served as a member of our Board of Directors since August 2004. Mr. Jolson is also the Chief Executive Officer of JMP Asset Management and JMP Realty Trust and is a Portfolio Manager of Harvest Opportunity Partners II, L.P. and its related funds, one of our family of hedge funds. Previously, Mr. Jolson was a Senior Managing Director and Senior Research Analyst at Montgomery Securities, now Banc of America Securities, for 15 years. Prior to that, he was a Consulting Research Analyst at Fidelity Management and Research in Boston in 1983 and 1984 and at Donaldson, Lufkin & Jenrette in New York from 1980 through 1982. Mr. Jolson was named to Institutional Investor magazine’s All-America Research Team for 10 consecutive years, between 1986 and 1995, for his coverage of the savings and loan industry and was also selected as an All-Star Analyst by the Wall Street Journal in the financial services category in 1996 and 1997. Additionally, he was ranked as a top-five thrift analyst every year from 1985 through 1994 by Greenwich Associates. Mr. Jolson received an MBA degree with distinction from The Wharton School at the University of Pennsylvania and a BA degree from Yale University.

Craig R. Johnson , age 53, joined us in January 2002 and is President of JMP Group and a member of our Executive Committee. Mr. Johnson has served as a member of our Board of Directors since August 2004. He previously served as President of JMP Securities, from January 2002 until January 2007. Mr. Johnson was a founding member of Saw Island Asset Advisors, LLC, an alternative investment firm specializing in hedge fund investments which was acquired by JMP Asset Management in January 2003. Prior to founding Saw Island Asset Advisors, Mr. Johnson spent 20 years, 1980 through 2000, at Montgomery Securities, now Banc of America Securities, most recently as director of global institutional sales and a member of the firm’s Executive Committee. Mr. Johnson serves on the Board of Directors of Corticon Technology, a rules-based enterprise software platform for decision management. Mr. Johnson received a BA degree from Stanford University.

Mark L. Lehmann , age 43, joined us in October 2003, is Director of Equities and Co-President of JMP Securities and a member of our Executive Committee. Mr. Lehmann has served as a member of our Board of Directors since August 2004. Previously, Mr. Lehmann was a Managing Director at U.S. Bancorp Piper Jaffray, where he initiated and managed the firm’s middle-market sales effort. He previously served as both the Global Director of Institutional Sales and the Global Director of Equity Research at Banc of America Securities after serving as an institutional salesperson at the firm and its predecessor, Montgomery Securities, for 10 years. Mr. Lehmann was also a founding partner of Baypoint Trading, a provider of trading execution services to investment managers. Mr. Lehmann received a JD degree from the New York University School of Law and a BA degree from the University of Illinois. He is a certified public accountant.

Carter D. Mack , age 45, co-founded JMP Group in 1999, and is Director of Investment Banking and Co-President of JMP Securities and a member of our Executive Committee. Mr. Mack has served as a member of our Board of Directors since August 2004. Prior to co-founding JMP Group, Mr. Mack was a Managing Director in the financial services group at Montgomery Securities, now Banc of America Securities, for three years, where he focused on corporate finance and mergers and acquisitions for finance companies, depository institutions and other financial intermediaries. Mr. Mack also spent five years working with financial institutions in the investment banking group at Merrill Lynch, two years in corporate finance at Security Pacific Corp. and three years in strategic planning at Union Bank of California. Mr. Mack received an MBA degree from the UCLA Anderson School of Management and a BA degree from the University of California, Berkeley.

Peter T. Paul , age 63, has served as a member of our Board of Directors since August 2004. Mr. Paul is the President of Paul Financial, LLC, a mortgage banking company he founded in 2003, and the owner and Chairman of Grove Street Winery. Previously, Mr. Paul was Chief Executive Officer of Headlands Mortgage Company, a residential mortgage banking firm which he founded in 1986, took public in 1998 and merged with Greenpoint Financial Corporation in 1999. Following the merger, Mr. Paul served as Vice Chairman of Greenpoint Financial, President and Chief Executive Officer of Greenpoint Mortgage, and subsequently as President and Chief Executive Officer of Greenpoint Credit. Mr. Paul resigned from the Board of Directors of Greenpoint Financial in July 2003. Mr. Paul is Chairman of the Board of Directors of JMP Realty Trust, Chairman of the Board of Directors of Sequoia National Bank and Chairman of the Board of Directors of the Headlands Foundation, a non-profit organization he founded in 1996. Mr. Paul was the recipient of Ernst and Young’s Financial Services Entrepreneur of the Year Award in 1999. Mr. Paul received an MBA degree from Boston University and a BA degree from the University of New Hampshire.

Edward J. Sebastian , age 60, has served as a member of our Board of Directors since August 2004. Mr. Sebastian is the founder, Chairman and Chief Executive Officer of SMR Group LLC, a private equity investment firm located in Newport Beach, California. Mr. Sebastian is the former Chairman and Chief Executive Officer of Resource Bancshares Mortgage Group, a residential mortgage company headquartered in Columbia, South Carolina, founded by Mr. Sebastian as a division of Republic National Bank in May 1989. Resource Bancshares Mortgage Group went public in 1993 and merged with NetBank, Inc., of Atlanta, Georgia, in March 2002. Prior to that, Mr. Sebastian was Vice Chairman of Bankers Trust of South Carolina and Corporate Executive Vice President of NCNB Corporation, which are both now part of Bank of America. Mr. Sebastian is a current member of the Board of Directors of the South Financial Group, a financial institution headquartered in Greenville, South Carolina, and is currently active on the boards of advisors of various venture capital funds, including Baker Communication Fund of New York, New York, and Vaxa Capital of Greenville, South Carolina. Mr. Sebastian received a BS degree from Pennsylvania State University.

Glenn H. Tongue , age 48, has served as a member of our Board of Directors since August 2007. Mr. Tongue has been a General Partner and Co-Manager of T2 Partners Management since April 2004 and is the co-manager of three private investment partnerships: the Tilson Growth Fund, the Tilson Offshore Fund and the T2 Qualified Fund. Prior to joining T2 Partners, Mr. Tongue spent seventeen years working on Wall Street, most recently as an investment banker at UBS, where he was a Managing Director and Head of Acquisition Finance. Previously, Mr. Tongue served as President of DLJdirect, a publicly traded online brokerage firm that was spun out of investment bank Donaldson, Lufkin & Jenrette in 1999. Mr. Tongue oversaw both DLJdirect’s initial public offering and its eventual sale. Additionally, Mr. Tongue was a Managing Director for ten years in the investment banking group at Donaldson, Lufkin & Jenrette. Mr. Tongue received an MBA degree with distinction from The Wharton School at the University of Pennsylvania and received a BS in Electrical Engineering and Computer Science from Princeton University.


MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a full-service investment banking and asset management firm headquartered in San Francisco. We have a diversified business model with a focus on small and middle-market companies and provide:


•

investment banking, including corporate finance, mergers and acquisitions and other strategic advisory services, to corporate clients;


•

sales and trading, and related brokerage services to institutional investors;


•

proprietary equity research in our six target industries; and


•

asset management products and services to institutional investors, high net-worth individuals and for our own account.

Corporate Reorganization

Prior to May 16, 2007, the Company had conducted its business through a multi-member Delaware limited liability company, JMP Group LLC, or the Predecessor, pursuant to its Third Amended and Restated Limited Liability Company Operating Agreement dated as of August 18, 2004, as amended, or the Operating Agreement. One of JMP Group LLC’s members, JMP Holdings Inc., was established in August 2004 to enable investors to invest through a corporate entity in the membership interests of JMP Group LLC. Shares of common stock of JMP Holdings were issued in a private offering in August 2004. JMP Holdings’ only significant asset until May 16, 2007 was its investment in JMP Group LLC, comprised of the member interests of JMP Group LLC purchased with the net proceeds received from issuance of JMP Holdings’ common stock.

In connection with its initial public offering, JMP Holdings changed its name to JMP Group Inc., and effective May 16, 2007, members of JMP Group LLC exchanged the outstanding membership interests of JMP Group LLC for shares of common stock of JMP Group Inc. As a result of the exchange, JMP Group LLC became JMP Group Inc.’s wholly-owned subsidiary and JMP Group Inc., or the Successor, completed its initial public offering on May 16, 2007. This corporate reorganization (“Reorganization”) is described in greater detail in the Registration Statement on Form S-1 (File No. 333-140689) filed with the Securities and Exchange Commission in connection with the initial public offering.

Predecessor and Successor

We have presented our historical financial results for the Predecessor and the Successor in the financial statements for the periods before and after the Reorganization on May 16, 2007. Despite the separate presentation, there were no material changes to the actual operations or customer relationships of our business as a result of the exchange of the membership interests of the Predecessor for shares of common stock of the Successor and the initial public offering of the Successor.

As the core operations of the Company have not changed as a result of the Reorganization, when evaluating our results of operations and financial performance, our management views the year ended December 31, 2007 as a single measurement period, rather than the two separate periods that are required to be reported under GAAP. We believe that comparisons between the Predecessor’s results for the year ended December 31, 2006 and either the Predecessor’s results for the period from January 1, 2007 to May 15, 2007 or the Successor’s results for the period from May 16, 2007 to December 31, 2007, may not provide users of our financial statements with all the information they may need to fully understand our operating and cash flow performance.

Consequently, to enhance the analysis of our operating results and cash flows, in our MD&A we have presented the operating results and cash flows of the Predecessor for the year ended December 31, 2006 and of the Predecessor and Successor on a combined basis for the year ended December 31, 2007. This combined presentation for the year ended December 31, 2007 represents a non-GAAP mathematical addition of the pre-reorganization results of operations and statements of cash flow of the Predecessor for the period from January 1, 2007 to May 15, 2007 and the results of operations and statements of cash flow of the Successor for the period from May 16, 2007 to December 31, 2007. The Successor conducted no material operational activities from the date of formation of JMP Holdings Inc. until the combination with JMP Group LLC on May 16, 2007. We believe that the combined presentation provides additional information investors can use to conduct a meaningful comparison of operating results and cash flows between periods. A reconciliation showing the mathematical combination of our operating results for such periods is included below under the headings “Historical Results of Operations” and “Liquidity and Capital Resources.”

Components of Revenues

We derive revenues primarily from fees earned from our investment banking business, net commissions on our trading activities in our sales and trading business, and asset management fees in our asset management business. We also generate revenues from principal transactions, interest, dividends, and other income.

Investment Banking

We earn investment banking revenues from underwriting securities offerings, arranging private placements and providing advisory services in mergers and acquisitions and other strategic advisory assignments.

Underwriting Revenues

We earn underwriting revenues from securities offerings in which we act as an underwriter, such as initial public offerings and follow-on equity offerings. Underwriting revenues include management fees, underwriting fees and selling concessions. We record underwriting revenues, net of related syndicate expenses, at the time the underwriting is completed. In syndicated underwritten transactions, management estimates our share of transaction-related expenses incurred by the syndicate, and we recognize revenues net of such expense. On final settlement by the lead manager, typically 90 days from the trade date of the transaction, we adjust these amounts to reflect the actual transaction-related expenses and our resulting underwriting fee. We receive a higher proportion of total fees in underwritten transactions in which we act as a lead manager.

Strategic Advisory Revenues

Our strategic advisory revenues primarily include success fees on closed merger and acquisition transactions, as well as retainer fees, earned in connection with advising both buyers’ and sellers’ transactions. We also earn fees for related advisory work and other services such as providing fairness opinions and valuation analyses. We record strategic advisory revenues when the transactions or the services (or, if applicable, separate components thereof) to be performed are substantially complete, the fees are determinable and collection is reasonably assured.

Private Placement Revenues

We earn agency placement fees in non-underwritten transactions such as private placements of equity securities, private investments in public equity, or PIPEs, Rule 144A private offerings and trust preferred securities offerings. We record private placement revenues on the closing date of these transactions.

Since our investment banking revenues are generally recognized at the time of completion of each transaction or the services to be performed, these revenues typically vary between periods and may be considerably affected by the timing of the closing of significant transactions.

Brokerage Revenues

Our brokerage revenues include commissions paid by customers from brokerage transactions in exchange-listed and over-the-counter, or OTC, equity securities. Commissions are recognized on a trade date basis. Brokerage revenues also include net trading gains and losses that result from market making activities and from our commitment of capital to facilitate customer transactions. Our brokerage revenues may vary between periods, in part depending on commission rates, trading volumes and our ability to continue to deliver research and other value-added services to our clients. The ability to execute trades electronically, through the Internet and through other alternative trading systems has increased pressure on trading commissions and spreads. We expect this trend toward alternative trading systems and pricing pressures in our brokerage business to continue. We are, to some extent, compensated through brokerage commissions for the value of research and other value added services we deliver to our clients. These “soft dollar” practices have been the subject of discussion among regulators, the investment banking community and our sales and trading clients. In particular, commission sharing arrangements have been adopted by some large institutional investors. In these arrangements, these institutional investors concentrate their trading with fewer “execution” brokers and pay a fixed amount for execution with an additional amount set aside for payments to other firms for research or other brokerage services. Accordingly, we may experience reduced (or eliminated) trading volume with such investors but may be compensated for our research and sales efforts through allocations of the designated amounts. Depending on the extent to which we adopt this practice and depending on our ability to reach arrangements on terms acceptable to us, this trend would likely impair the revenues and profitability of our commission business by negatively affecting both volumes and trading commissions in our commission business.

Asset Management Fees

Asset management fees include base management fees and incentive fees earned from managing investment partnerships sponsored by us and investment accounts owned by clients. Base management fees earned by us are generally based on the fair value of assets under management and the fee schedule for each fund and account. We also earn incentive fees that are based upon the performance of investment funds and accounts. Such fees are based on a percentage of the excess of an investment return over a specified highwater mark or hurdle rate over a defined performance period.

Our asset management revenues are subject to fluctuations due to a variety of factors that are unpredictable, including the overall condition of the economy and the securities markets as a whole and our core sectors. These conditions can have a material effect on the inflows and outflows of assets under management, and the performance of our asset management funds. For example, a significant portion of the performance-based or incentive revenues that we recognize are based on the value of securities held in the funds we manage. The value of these securities includes unrealized gains or losses that may change from one period to another.

As of December 31, 2007 and 2006, the contractual base management fees earned from each of these investment funds ranged between 1% and 2% of assets under management. The contractual incentive fees were generally (i) 20%, subject to highwater marks, for the hedge funds; (ii) 5% to 20%, subject to highwater marks or a performance hurdle rate, for the funds of funds; and (iii) 25%, subject to a performance hurdle rate, for JMPRT. As of December 31, 2005, the contractual base management fees earned from each of these investment funds ranged between 1% and 2% of assets under management. The contractual incentive fees were generally (i) 20%, subject to highwater marks, for the hedge funds and (ii) 10% to 20%, subject to highwater marks or a performance hurdle rate, for the funds of funds. The contractual base management fees and contractual incentive fees are each accrued monthly, while each are prepaid quarterly, one month after quarter end.

Year Ended December 31, 2007, Compared to Year Ended December 31, 2006

Overview

Total revenues increased $11.1 million, or 12.7%, from $86.8 million for the year ended December 31, 2006 to $97.9 million for the year ended December 31, 2007. The increase was primarily due to an increase in investment banking revenue of $5.2 million and brokerage revenue of $4.6 million.

Total expenses increased by $122.1 million, or 147.2%, from $83.0 million for the year ended December 31, 2006 to $205.1 million for the year ended December 31, 2007, primarily due to an increase in income allocation and accretion expense of $106.8 million resulting from a one-time non-cash expense of $112.9 million associated with the exchange of Redeemable Class A member interests into shares of our common stock in connection with the Reorganization at the time of our initial public offering.

Net income decreased $108.5 million from $3.4 million for the year ended December 31, 2006 to a loss of $105.2 million for the year ended December 31, 2007, primarily as a result of the aforementioned $106.8 million increase in income allocation accretion expense due to a one-time non-cash expense associated with the Reorganization.

Revenues

Investment Banking

Investment banking revenues increased $5.2 million, or 11.8%, from $44.1 million for the year ended December 31, 2006 to $49.3 million for the same period in 2007, and decreased as a percentage of total revenues from 50.8% to 50.4%, respectively. The increase reflects higher revenue in our strategic advisory and public equity underwriting businesses, partially offset by decreased revenues in our private placement business. Our strategic advisory revenues increased $7.2 million, or 55.6%, from $12.9 million for the year ended December 31, 2006 to $20.1 million for the year ended December 31, 2007, due to a 47.4% increase in average revenues per transaction in 2007 compared to 2006, during which 19 and 18 transactions were executed, respectively. Public equity underwriting revenues increased by $1.1 million, or 5.9%, from $18.3 million for the year ended December 31, 2006 to $19.4 million for the year ended December 31, 2007. We executed 35 public equity underwriting transactions in the year ended December 31, 2007 compared to 36 in the year ended December 31, 2006. During the year ended December 31, 2007, we acted as a lead manager on eight public equity underwriting transactions, for which generally higher fees are earned, raising gross proceeds of $646.1 million compared with five in the year ended December 31, 2006, raising gross proceeds of $312.2 million. Private placement revenues decreased $3.1 million, or 23.8%, from $12.8 million for the year ended December 31, 2006 to $9.7 million for the year ended December 31, 2007. The decrease was primarily due to fewer executed originations of trust preferred securities and to lower average revenues per private placement transaction in the year ended December 31, 2007, compared to the year ended December 31, 2006.

Brokerage Revenues

Brokerage revenues increased by $4.6 million, or 15.4%, from $30.2 million for the year ended December 31, 2006 to $34.8 million for the year ended December 31, 2007. The increase was a result of higher gross commission revenue, partially offset by an increase in trading losses for the year ended December 31, 2007 compared to the year ended December 31, 2006. The increase in commissions resulted from increased trading activity with existing clients, and the addition of new institutional clients during the period. The increase in trading losses resulted from taking more frequent positions in greater amounts to facilitate customer trades, increased market making activities, as well as increased market volatility in the second half of 2007. Brokerage revenues increased as a percentage of total revenues, from 34.8% for the year ended December 31, 2006 to 35.6% for the year ended December 31, 2007.

Asset Management Fees

Asset management fees increased by $0.5 million, or 11.4%, from $4.5 million for the year ended December 31, 2006 to $5.0 million for the year ended December 31, 2007. Asset management fees include both base management fees and incentive fees for our funds under management. The increase in 2007 was due to higher incentive fees, which grew 29.9% from the year ended December 31, 2006, based on the improved performance of our funds. Base management fees, which are earned based on assets under management, remained steady from 2006 to 2007. Although client assets under management increased from $208.2 million as of December 31, 2006 to $237.3 million as of December 31, 2007, there was a shift in the composition of assets under management from hedge funds to funds of funds, which charge lower base management fees. As a percentage of total revenues, asset management fees remained at 5.2% for both years.

Principal Transactions

Principal transaction revenues decreased $1.3 million from $4.3 million for the year ended December 31, 2006 to $2.9 million for the year ended December 31, 2007. The decrease was due to a decrease in gains from equity investments in publicly held securities of $1.6 million, partially offset by an increase of $0.2 million in gains from investment partnerships, attributable to the performance of the funds managed by us, and a slight decrease in losses related to the value of warrant positions, which reflect the market performance of the companies in which we hold warrants.

Interest, Dividends and Other Income

Interest, dividends and other income increased $2.0 million, or 54.3%, from $3.7 million for the year ended December 31, 2006 to $5.8 million for the same period in 2007. The increase was primarily attributable to investing a portion of proceeds from our initial public offering in short duration AAA rated securities, as well as to higher market interest rates, more active cash management, and an increased capital allocation to our investment portfolio, which returned higher interest and dividend income as a percent of total invested capital.

Expenses

Compensation and Benefits

Compensation and benefits, which includes salaries, commissions and performance bonus compensation to our employees, increased $13.9 million, or 27.7%, from $50.1 million for the year ended December 31, 2006 to $64.0 million for the year ended December 31, 2007. Of the total compensation and benefits expense for 2007, $8.3 million is attributable to equity-based compensation expenses, comprised primarily of $7.2 million in expense recognized for accelerated vesting of stock options and the grant of restricted stock units in connection with the initial public offering. In addition, employee payroll and accrual for bonuses increased by $5.8 million, or 11.6%, which is primarily attributable to the 12.7% increase in revenues from 2006 to 2007, to which we apply a target compensation to revenue ratio in the accrual of bonuses. Compensation and benefits as a percentage of revenues increased from 57.8% of total revenues for the year ended December 31, 2006 to 65.4% for the same period in 2007. Excluding non-cash compensation expense in the amount of $7.2 million from equity-based awards granted or vested in connection with the initial public offering, compensation and benefits, as a percentage of revenues, increased from 57.8% of total revenues for the year ended December 31, 2006 to 58.0% for the same period in 2007.

Income Allocation and Accretion—Redeemable Class A Member Interests

Income allocation and accretion increased $106.8 million from $10.7 million for the year ended December 31, 2006 to $117.4 million for the year ended December 31, 2007 primarily due to a one-time non-cash expense of $112.9 million as a result of the exchange of Redeemable Class A member interests into shares of our common stock in connection with the Reorganization at the time of our initial public offering. Due to this one-time non-cash expense, income allocation and accretion increased from 12.3% of total revenues for the year ended December 31, 2006, to 120.0% for the year ended December 31, 2007.

Administration

Administration expenses increased $0.9 million, or 22.3%, from $4.2 million for the year ended December 31, 2006 to $5.1 million for the year ended December 31, 2007. The increase was primarily due to higher insurance and other expenses, such as franchise taxes and stock listing fees, associated with being a public company. The increase is also due to higher conference expense in 2007, which was the result of increased conference attendance and higher production cost during 2007 compared to 2006. Administration expense increased from 4.8% of total revenues for the year ended December 31, 2006 to 5.3% for the same period in 2007.

Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees increased $0.9 million, or 22.3%, from $4.1 million for the year ended December 31, 2006 to $5.1 million for the year ended December 31, 2007. The increase was primarily due to an increase in trading activity in our sales and trading business as total shares traded increased 60.7% from the year ended December 31, 2006 to the year ended December 31, 2007. As a percentage of total revenues, our brokerage, clearing and exchange fees increased from 4.8% for the year ended December 31, 2006 to 5.2% for the same period in 2007.

Interest and Dividend Expense

Interest and dividend expense decreased $0.6 million, or 37.4%, from $1.7 million for the year ended December 31, 2006 to $1.1 million for the year ended December 31, 2007. The decrease was primarily due to the discontinuation of interest payments to Redeemable Class A members, as a result of the exchange into common stock at the time of the initial public offering. As a percentage of total revenues, interest and dividend expense decreased from 1.9% for the year ended December 31, 2006 to 1.1% for the same period in 2007.

Other Expenses

Other expenses increased $0.3 million, or 2.4%, from $12.2 million for the year ended December 31, 2006 to $12.5 million for the year ended December 31, 2007. The year ended December 31, 2007 reflected an increase of $1.4 million in professional fees, consisting primarily of increased legal, audit and accounting expenses due to added obligations as a public company starting on May 16, 2007. This increase was offset by a $0.9 million decrease in travel and business development expense, primarily due to higher client reimbursements for investment banking transactions executed and closed in the year ended December 31, 2007. As a percentage of total revenues, other expenses decreased from 14.0% for the year ended December 31, 2006 to 12.7% for the year ended December 31, 2007.

Minority Interest

Minority interest relates to the consolidation of JMP Realty Trust and of two of our hedge funds, Harvest Consumer Partners and Harvest Technology Partners. Minority interest of $0.4 million remained unchanged for the year ended December 31, 2007 from the year ended December 31, 2006.

Provision for Income Taxes

Prior to the completion of our initial public offering on May 16, 2007, we were a limited liability company treated as a partnership; therefore, all of our income and losses were reportable by the individual members. The U.S. federal and state income taxes payable by the members based upon their share of our net income have not been reflected in the accompanying financial statements for the periods prior to the initial public offering. We were, however, subject to state and local unincorporated tax and franchise tax.

In connection with our initial public offering and Reorganization, we are subject to federal and state income taxes on all taxable income earned subsequent to May 15, 2007. Additionally, in connection with the Reorganization, we recognized a one-time tax benefit of $4.0 million in connection with the establishment of net deferred tax asset items of $10.2 million. In calculating the one-time tax benefit amount and associated deferred tax asset items, the Company makes reasonable estimates of its share of the 2006 taxable income and 2007 taxable income attributed to the period from January 1 through May 15, 2007 of the partnerships in which it has a direct or indirect interest. Including the one-time tax benefit, during the years ended December 31, 2007 and December 31, 2006, we recorded a total tax expense (benefit) of ($2.5) million and ($0) million, respectively.

The effective tax rate for the years ended December 31, 2007 and December 31, 2006 was 38.7% and 0%, respectively, excluding the one-time tax benefit. Including the one-time tax benefit, the effective tax rate for the years ended December 31, 2007 and December 31, 2006 was (63.4%) and 0%, respectively.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Historical Results of Operations

The following table sets forth our historical results of operations for the three and nine month periods ended September 30, 2008 and 2007 and is not necessarily indicative of the results to be expected for any future period.

For purposes of the three and nine month periods ended September 30, 2007 discussed herein, we have aggregated the Predecessor period from January 1, 2007 through May 15, 2007 and the Successor period from May 16, 2007 through September 30, 2007, without further adjustment, for purposes of comparison with the same periods in 2008. The supplemental aggregate disclosures and discussions are not in accordance with, or an alternative for, generally accepted accounting principles, and are provided solely for the purpose of providing additional supplemental information.

Three Months Ended September 30, 2008, Compared to Three Months Ended September 30, 2007

Overview

Total revenues decreased $5.2 million, or 24.6%, from $21.0 million for the quarter ended September 30, 2007 to $15.8 million for the quarter ended September 30, 2008. The decrease was primarily due to a decrease in investment banking revenue of $4.5 million and principal transaction revenues of $3.6 million, of which $3.1 million is related to unrealized losses from our convertible preferred security and equity security investments in NYMT, partially offset by an increase in asset management fee revenue of $1.4 million, brokerage revenue of $1.4 million and interest, dividends and other income of $0.2 million.

Total expenses increased by $5.5 million, or 29.8%, from $18.6 million for the quarter ended September 30, 2007 to $24.1 million for the quarter ended September 30, 2008, primarily due to an increase in compensation and benefits of $4.7 million and other expenses of $0.7 million.

Net income decreased $6.0 million from a net income of $1.1 million for the quarter ended September 30, 2007 to net loss of $4.9 million for the quarter ended September 30, 2008, primarily as a result of the aforementioned decrease in revenue and increase in expenses during the quarter.

Revenues

Investment Banking

Investment banking revenues decreased $4.5 million, or 48.1%, from $9.4 million for the quarter ended September 30, 2007 to $4.9 million for the same period in 2008, and decreased as a percentage of total revenues from 44.7% to 30.8%, respectively. The decrease in revenues reflects a lower level of activity in our public equity underwriting and private placement business, partially offset by increased activity in our strategic advisory businesses. Public equity underwriting revenues decreased by $4.4 million, or 94.1%, from $4.7 million for the quarter ended September 30, 2007 to $0.3 million for the quarter ended September 30, 2008. The decrease is primarily due to highly volatile capital market conditions in the third quarter of 2008, which caused a significant decline in new equity issuance by U.S. companies during the period. We executed one public equity underwriting transaction in the quarter ended September 30, 2008 compared to eight in the quarter ended September 30, 2007. We acted as a lead manager in none and three transactions, respectively. Private placement revenues decreased $2.1 million, or 95.3%, from $2.2 million for the quarter ended September 30, 2007 to $0.1 million for the quarter ended September 30, 2008 due to fewer private placement transactions executed. Our strategic advisory revenues increased $2.0 million, or 77.9%, from $2.5 million for the quarter ended September 30, 2007 to $4.5 million for the quarter ended September 30, 2008, due to a higher number of transactions executed. We executed five strategic advisory transactions in the quarter ended September 30, 2008 compared to three in the quarter ended September 30, 2007.

Brokerage Revenues

Brokerage revenues increased by $1.4 million, or 17.1%, from $8.2 million for the quarter ended September 30, 2007 to $9.6 million for the quarter ended September 30, 2008. The increase was the result of higher gross commission revenue as well as reduced trading losses for the quarter ended September 30, 2008 compared to the quarter ended September 30, 2007. The increase in commissions resulted from increased trading activity with existing clients, and the addition of new institutional clients during the period. Brokerage revenues increased as a percentage of total revenues, from 38.9% for the quarter ended September 30, 2007 to 60.4% for the quarter ended September 30, 2008.

Asset Management Fees

Asset management fees increased $1.4 million, or 143.3%, from $0.9 million for the quarter ended September 30, 2007 to $2.3 million for the quarter ended September 30, 2008. Asset management fees include base management fees and incentive fees for our funds under management, both of which increased for the quarter ended September 30, 2007 compared to the quarter ended September 30, 2008. The increase in base management fees is the result of an increase in client assets under management from $221.7 million as of September 30, 2007 to $450.1 million as of September 30, 2008. The increase in incentive fees is due to the improved performance of our families of funds, in particular the Harvest Small Cap Partners fund. As a percentage of total revenues, asset management fees increased from 4.5% for the quarter ended September 30, 2007 to 14.5% for the same period in 2008.

Principal Transactions

Principal transaction revenues decreased $3.6 million from a gain of $0.9 million for the quarter ended September 30, 2007 to a loss of $2.7 million for the quarter ended September 30, 2008. The decrease was primarily due to a loss of $3.2 million during the third quarter of 2008 in our equity security investments compared with a gain of $0.3 million for the third quarter of 2007, mostly related to a $3.1 million unrealized loss from our convertible preferred security and equity security investments in NYMT.

Interest, Dividends and Other Income

Interest, dividends and other income increased $0.2 million, or 11.6%, from $1.6 million for the quarter ended September 30, 2007 to $1.8 million for the same period in 2008. The increase was attributable to interest and dividend income, which increased from $1.5 million for the quarter ended September 30, 2007 to $1.6 million for the same period in 2008, and was primarily due to the dividend earned from our investment in NYMT convertible preferred securities. Other income, primarily from revenue sharing arrangements with, and fees earned to raise capital for third-party investment partnerships or funds, also increased $0.1 million from $0.1 million for the quarter ended September 30, 2007 to $0.2 million for the quarter ended September 30, 2008.

Expenses

Compensation and Benefits

Compensation and benefits, which includes salaries, commissions and performance bonus compensation to our employees, increased $4.7 million, or 36.1%, from $13.0 million for the quarter ended September 30, 2007 to $17.7 million for the quarter ended September 30, 2008. The increase was due to the increase of $4.2 million in employee payroll and accrual for bonuses, which is primarily attributable to the application of our target compensation to revenue ratios used for the accrual of bonuses, as adjusted by management to maintain competitive compensation levels. Due to the continued difficult market conditions, we increased our compensation expense accrual in the third quarter 2008 with the objective of achieving full-year compensation levels in order to retain our talent base. In addition, there was an increase of $0.5 million in equity-based compensation expenses recognized for the quarter ended September 30, 2008, compared to the same quarter in 2007. Of the total compensation and benefits expense for the quarter ended September 30, 2008, $2.0 million is attributable to equity-based compensation expenses, comprised of expense recognized for restricted stock units granted in connection with the initial public offering in May 2007 of $0.8 million, as well as restricted stock units granted after the initial public offering in connection with annual bonuses and other awards of $1.2 million. Compensation and benefits as a percentage of revenues increased from 62.0% of total revenues for the quarter ended September 30, 2007 to 111.9% for the quarter ended September 30, 2008. Excluding expense from equity-based awards granted in connection with the initial public offering, as a percentage of revenues, compensation and benefits increased from 55.3% of total revenues for the quarter ended September 30, 2007 to 106.9% for the same period in 2008. The higher percentages of total revenue were a result of the higher compensation and benefits expenses and lower revenues in 2008 compared to the same period in 2007.

Administration

Administration expenses were flat at $1.3 million for the quarter ended September 30, 2007 and 2008. Administration expense increased from 5.9% of total revenues for the quarter ended September 30, 2007 to 7.9% for the same period in 2008 as a result of lower revenues in 2008 compared to 2007.

Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees increased $0.1 million, or 7.8%, from $1.3 million for the quarter ended September 30, 2007 to $1.4 million for the quarter ended September 30, 2008. The increase was primarily due to slightly higher brokerage execution costs during the quarter ended September 30, 2008. As a percentage of total revenues, our brokerage, clearing and exchange fees increased from 6.1% for the quarter ended September 30, 2007 to 8.8% for the same period in 2008.

Interest and Dividend Expense

Interest and dividend expense was flat at $0.1 million for the quarter ended September 30, 2007 and 2008. As a percentage of total revenues, interest and dividend expense increased from 0.5% for the quarter ended September 30, 2007 to 0.8% for the same period in 2008.

Other Expenses

Other expenses increased $0.7 million, or 24.5%, from $2.9 million for the quarter ended September 30, 2007 to $3.6 million for the quarter ended September 30, 2008. The increase is primarily due to the loan loss provision of $0.4 million recorded in the third quarter of 2008 and a $0.2 million increase in travel and entertainment expense, due to fewer investment banking transaction expense reimbursements compared to the same period in 2007. As a percentage of total revenues, other expenses increased from 13.7% for the quarter ended September 30, 2007 to 22.7% for the same period in 2008 mostly as a result of lower revenues in 2008 compared to the same period in 2007.

Minority Interest

Minority interest relates to the consolidation of JMPRT and two of our hedge funds, Harvest Consumer Partners and Harvest Technology Partners (through July 31, 2008), as well as Opportunity Acquisition Corp. We recorded a reduction to net loss of $369 thousand for minority interest for the quarter ended September 30, 2008 compared to a reduction to net income of $304 thousand for minority interest for the quarter ended September 30, 2007, due to a reduction in the aggregate performance of our minority interest entities for the quarter ended September 30, 2008 compared to the same period in 2007.

Provision for Income Taxes

Prior to the completion of our initial public offering on May 16, 2007, we were a limited liability company treated as a partnership for income tax purposes; therefore, all of our income and losses were reportable by the individual members. The U.S. federal and state income taxes payable by the members based upon their share of our net income have not been reflected in the accompanying financial statements for the periods prior to the Reorganization. We were, however, subject to state and local unincorporated tax and franchise tax.

In connection with our initial public offering and Reorganization, we are subject to federal and state income taxes on all taxable income earned subsequent to May 15, 2007. Additionally, in connection with the Reorganization, we recognized a one-time tax benefit of $4.0 million in connection with the establishment of net deferred tax asset items of $10.2 million. In calculating the one-time tax benefit amount and associated deferred tax asset items, the Company made reasonable estimates of its share of the 2006 taxable income and 2007 taxable income attributed to the period from January 1 through May 15, 2007 of the partnerships in which it had a direct or indirect interest. These estimates may change as additional information becomes available; as a result, the net one-time tax benefit amount may change. For the three months ended September 30, 2008 we recorded a total tax benefit of $3.0 million and for the three months ended September 30, 2007 we recorded a total tax expense of $1.0 million. Excluding the tax benefit adjustment of $0 and $0.2 million, we recorded a tax (benefit) expense of $(3.0) million and $0.8 million for the three months ended September 30, 2008 and 2007, respectively.

The effective tax rate for the three months ended September 30, 2008 and 2007 was 37.7% and 47.0%, respectively, including the prior year one-time tax benefit adjustment. Excluding the prior year one-time tax benefit adjustment, the effective tax rate for the three months ended September 30, 2008 and 2007 was 37.7% and 38.5%, respectively.

CONF CALL

Andrew Palmer

Thank you, and good morning. Welcome to JMP Group's fourth quarter 2007 earnings conference call.

First, I'd like to point out that this morning's press release regarding JMP Group's quarterly and full year results is available on the company's website at www.jmpg.com. In addition, we expect to file a Form 10-Q with the Securities & Exchange Commission later this week, which will be accessible on our website and on the SEC's as well.

In the room with me this morning are Joseph Jolson, Chairman and Chief Executive Officer of JMP Group; Thomas Kilian, our Chief Financial Officer; and Carter Mack and Mark Lehmann, Co-Presidents of JMP Securities.

Before I turn the call over to Joe, I'd like to remind you that some of the comments made during today's call may contain forward-looking statements about future events that by their nature are uncertain and outside of the JMP Group’s control. The company's actual results and financial conditions may differ from what is indicated or implied in these forward-looking statements.

For a discussion of some of the risks and uncertainties that could affect JMP Group's future results please see the description of risk factors included in our forthcoming 10-K and in our Form S-1 registration statement which was filed with the SEC on May 11th, 2007.

That said, I would like to turn the call over to our Chairman and CEO, Joe Jolson.

Joseph Jolson

Thanks, Andrew. I would like to thank everyone on the call today and thank for your interest in JMP Group.

As most of you know, 2007 was our first year as a public company following our IPO in May of 2007. I want to take this opportunity to especially thank all of the employees of JMP for their hard work and their dedication. We had a lot of thing happen this year; some good, some bad, but there has been a lot of change, including being a public company. It was collectively our efforts that produced these results for our shareholders.

Before Thomas goes through our quarterly results in more detail, I want to make a couple of quick comments on the revenues and operating earnings that we produced. I want to point out that we refer to operating earnings as the measure that we look at. Just quickly, it's better defined in our press release, but basically the only difference between operating earnings, going forward, as well as this quarter and GAAP earnings, is the amortization of our IPO stock awards that will be with us for basically the next three years.

As you could see from the press release this morning we actually reported record results in the fourth quarter. Our revenues grew 37% from a year ago to almost to $32 million and this was in the context of a very difficult operating environment, not just for the stock market in general and the second half for the fourth quarter, but also in some of the areas that we focus in.

Our operating earnings grew 27% to $3.3 million or $0.16 per diluted share. For the full year, revenues grew 13% to $98 million and operating earnings grew 12% to $0.52 for fully-diluted shares.

Now Thomas is going to take you through more details here, and then I will come back and make some comments about not just last year but maybe some of the things going on right now. I would also like to mention that Craig Johnson, the President of JMP group just joined us in the room as well. Tom?

Thomas Kilian

Thanks Joe. On a GAAP basis, JMP reported a net income of $2.6 million or $0.12 per diluted share for the fourth quarter. For the full year 2007, the GAAP net income was as follows: For the pre IPO partnership, JMP reported a net loss of $111.7 million for the period from January 1 through May 16th, 2007, due to a non cash one-time expense of $112.9 million related to the company’s corporate reorganization.

For the period from May 16 through December 31, 2007, JMP as the post IPO Corporation reported a net income of $3.9 million. It's already mentioned operating net income for the fourth quarter was $3.3 million, or $0.16 per diluted share. JMP's operating net income for the fiscal year 2007 was $10.1 million, or $0.52 per diluted share.

Note that today's press release details the difference between the company's GAAP net income and its operating net income, and includes a table reconciling the two. Joe has already discussed our total revenues, but I will go into some more specifics of the various business lines here. Investment banking revenues for the fourth quarter were $16.4 million, up 56% from $10.5 million for the fourth quarter of 2006. For 2007 investment banking revenues were $49.3 million, up 12% from $44.1 million for 2006.

Public equity underwriting revenues for the fourth quarter totaled $5.8 million, compared to $6.8 million for the fourth quarter of 2006. Challenging equity capital markets conditions during part of the quarter led us to complete 10 public offerings compared to 14 during the fourth quarter of 2006. However, despite the headwinds in the capital markets, public equity underwriting revenues for 2007 totaled $19.4 million, compared to $18.3 million for 2006, an increase of 6%.

JMP acted as lead manager of 8 public equity offerings raising $646 million in 2007 versus 5 offerings which raised $312 million in the prior year. We had strong strategic advisory revenues for the fourth quarter of $9.4 million, compared to $3.1 million for the fourth quarter of last year.

For the full year, strategic advisory revenues claimed 56% to $20.1 million from $12.9 million for 2006, while JMP completed just one more strategic advisory engagement in 2007. Then in 2006, it was 90 in this year versus 80 last year, and the JMP Group average revenues per engagement by 47% year-over-year.

Private placement revenues for the quarter were $1.2 million, compared to $0.5 million for the fourth quarter last year. For the full year private placement revenues were $9.7 million, down from $12.8 million for 2006. This difference is largely due to JMP's executing fewer trust preferred securities offerings in 2007 than in 2006, as a result of the deterioration of the credit market.

JMP's net brokerage revenues for the fourth quarter were a record $9.6 million, up 29% from $7.4 million for the fourth quarter of 2006 and for the fiscal year 2007 net commissions revenues grew 15% to $34.8 million from $30.2 million for the prior year.

Asset management fee revenues totaled $2.3 million for the fourth quarter, up 13% from $2.1 million for the fourth quarter of last year. Asset management revenues totaled $5 million for the year, up 11% from $4.5 million for 2006.

At December 31, 2007, our client assets under management equaled $237 million, an increase of 14% from $208 million for year-end 2006. In early January, we received additional ad contributions of nearly $36 million resulting in total client assets under management of $273 million as of January 3, 2008.

Now for the expenses, compensation and benefits expense equals $20.8 million for the fourth quarter compared to $12.5 million for the fourth quarter of 2006. For the full year, compensation and benefits expenses equaled $64 million in 2007, compared to $50.1 million in the prior year.

2007 compensation expense included non-cash expense. This was related to equity-based awards granted or invested in connection with our IPO of $1.3 million for the fourth quarter and $7.2 million for the full year. Excluding the cost of these IPO related awards, the ratio of compensation to total revenues was 61.3% for the fourth quarter, resulting in a compensation ratio of 58% for the full fiscal year.

We achieved an annual compensation ratio of less than 60% of total revenues, as we stated is our objective in our IPO prospectus, and we intend to keep the annual expense ratio below 60% in the future.

Non-compensation expense was $6.5 million or 20% of revenues for the fourth quarter, compared to $6.1 million or 26% of revenues for the fourth quarter of 2006. For the full year, non-compensation expense was $23.7 million in 2007 and $22.2 million in 2006 or approximately 24% of total revenues in '07 and 26% of revenues in '06.

The expenses related to income allocation and accretion of Redeemable Class A member interests are excluded from these calculations in order to normalize the results.

And briefly some words about the company's balance sheet: JMP's balance sheet remains fairly liquid and un-levered. At December 31st, JMP had nearly $111 million in net cash and investments that excludes accrued bonuses that we paid in February of this year. That is approximately $5.37 per share. Total equity at year-end was $116.6 million. Our book value was $5.60 per share based on $20.6 million basic shares outstanding.

As we announced last quarter, the JMP Group was authorized to repurchase up to 1.5 million shares of its stock. During the fourth quarter this past January, we completed the purchase of all 1.5 million shares at a total cost of $11.5 million or $7.66 per share on average. Earlier this week, our board authorized a new share repurchase program for the repurchase of additional 2 million shares during the next 18 months.

Finally, JMP has declared a fourth quarter dividend of $0.05 per share, which equals the previous quarter dividend amount, which will be paid in April to shareholders on record as at March 28th.

With that, I would turn it back over to Joe.

Joseph Jolson

Thanks Thomas. I like to put these results in some perspective and some observations on some of the numbers from last year. As we have mentioned repeatedly in the past, both when we went public and on our previous conference calls, given the business mix the JMP Group has currently, we have exposures to mortgage and specialty finance, and in particular the homebuilding industry. These are exposures that we’ve had since we started the business when a 100% of our revenues came from those sectors. Then in 2006, it was about 35% of our revenues that came from those sectors going into the turmoil that occurred this year, in particular, in the second half for the year. That turmoil has continued into the first quarter of this year.

We have been pretty open about these exposures and I would like to point out that based on our results for last year in the fourth quarter, exposures are fete accompli in terms of results. We had a very successful first year as a public company. We generated record revenues. We came within a few hundred grand of generating record operating net income.

We finished the year with our best quarter ever, in terms of revenues and operating earnings. We have a lot going on in our asset management business, in terms of building assets under management, that didn't really show up in our '07 results because of the timeframe in terms of adding the assets and collecting the fees. But this should benefit our '08 outlook, and as Thomas and I both mentioned, we had a strong fourth quarter.

All this in the face of the turbulent stock market conditions that clearly impacted certain parts of our business, but I think it's the testimony to our strategy starting in 2001, which is aggressively diversifying into other industry sectors as well as other products and different business lines.

Let me just go into some detail about those different business lines. Our last year investment banking revenues actually grew 12%, despite what we continue to refer to as a very difficult environment in some of the experience of our peer group out there.

When you look at our sectors, they were pretty balanced last year. As I mentioned, the original basis of our group, which for us is really mortgage, specialty finance, consumer finance, which was about one-quarter of investment banking revenues last year, real estate and related areas. We put hospitality, that was about another quarter with life sciences and technology, also representing about a quarter each of our investment banking revenues.

In addition to that, we have made major push in the last three years into building an advisory business. As most of you know, last year advisory fees as well as private placement revenues totaled over 60% of our investment banking revenues for last year. Three years ago, when we started this push that number was 29% of a much lower number. So, we feel pretty good about how we performed last year, given our product mix as well the turbulence stock market, particularly in the fourth quarter.

From an institutional brokerage business, we went through this at length when we went public. We continue to expect double-digit and top line growth, even though we are being impacted by all the same trends that everyone else is. We have felt that we had not achieved our natural market share, yet in that business and at the end of the year, we showed over 15% growth in brokerage revenues.

And there aren't great numbers on this, but our best guess is that the overall business declined over 10% last year, and what would be available to us to capture for our piece of that business? Importantly, though, not that many people focus on this from the outside, we achieved these market share gains with a relatively flat head count in research, sales and trading, which means the profitability of that area improved along with the increase in revenues.

Asset management-related fees and these numbers I am going to give you now were including fundraising fees that we raised for an outside fund that we sponsor, or we get a percentage of what their fees are. That shows up in other income in our GAAP financials, but conceptually, it's part of how we are building our asset management business. Those fees last year rose over 20% year-over-year.

Now, we mentioned in previous calls that over half of our assets under management have been in funds that focus in housing, mortgage, specialty finance. Our capital was invested in these funds as well. Over half of the capital we've invested is in these funds. So given the turbulent times in the equities market for the year, I think it was reasonable to assume we would have a difficult year last year, and we were cautious.

Though, I'm happy to report that we did much better than expected last year, despite all this. Last year our return on our funds was up over 10%, and it wasn’t a smooth 10%, but at the end of the year when we added it up it was up over 10%. We grew assets under management for the first time in a number of years, which we were hopeful when we took -- in the IPO roadshow that that had bottomed out.

And I'm happy to report that, so far this year, at least on January 2nd as opposed to December 31st -- it is in the press release; assets under management were up 15% into the new year over the level that they ended last year, which is as you saw from the press release, year-over-year, we are up 14% in assets under management. So, on January 2nd that number grew another 15% on top of that.

Obviously, this bodes well for the outlook for management fee income in 2008. In particular, the two fund strategies that have been performing very well in our group and generating a lot of this growth have been our small cap fund run by Jeff [Bolsher] and our Masters Funds, both the emerging, as well as the Masters fund run by [Bruce Marsh-Becker], Craig Johnson and Jack Barber, who are just superlative in a difficult time and have been growing their assets under management.

In addition to these public securities funds, we have also started some private equity and direct invest initiatives in the last few months, that we are hopeful will have positive impact not just on 2008, but over the next few years. Now since we went public, we have deployed some of the IPO proceeds. Some of it has gone into repurchasing our shares. Thomas mentioned the number of shares, which cost us roughly $11.5 million. So basically, we are able to repurchase almost 7% of our company at a net enterprise value of less than $2.5 a share.

Today our net enterprise value is even less. It appears that it's closer to $0.50 a share today. That shouldn’t come as a surprise that we were interested in buying more shares now. Over the next year or so, if we execute on that 2 million share authorization plus the 1.5 million, that will be roughly a third of our float that exists right now or at least after the IPO, after lock up was released. Then I think that we are planning on paying for this buyback through retained earnings over the next 12 to 24 months.

I would also like to mention, as most of you know, but this is public information, we made an investment in the company called New York Mortgage Trust in January. And our 50% owned REIT, JMP Reality Trust also made an investment. Our company invested $5 million in a Convertible Preferred REIT, which we have one half of invested, another $10 million in that offering, and then other affiliated entities that aren’t part of JMP Group investing another $5 million.

In February, JMP Securities executed a $60 million equity-type transaction bringing New York Mortgage Trust for JMP Group investing another $4.5 million into that. Recently there has been a liquidity squeeze in Agency Mortgage-Backed Securities, which has resulted frankly from the liquidation of some highly levered funds, not the likes of which we have seen since long-term capital back in 1998.

I am happy to report in New York Mortgage Trust, we made a press release yesterday about the fact that they have been able to weather the storm. Currently spreads on investing in agency arms and hybrid securities are at the highest levels that I think they have ever been, and they are providing really attractive returns on incremental capital.

So we are hopeful over the next month or two that New York Mortgage Trust can actually access growth capital and take advantage of these, but they have been successful in weathering this downturn, unlike the number of other publicly-traded companies that are pretty high profile, which have had some significant difficulties.

Just a brief comment on our margins and our goals longer-term that we have talked about in the past: We are continuing to target revenue growth over the next five years in the 10% to 20% a year range. In Asset Management, we are hopeful that we are at the top end or above that range and in Investment Banking we will be looking at the mid to top end of that range.

In the Brokerage side, some of that depends on some of these secular trends, but we are still hopeful that at least it will be in the 10% to 15% range, like it has been in the last few years. I think it's important to note that we were able to deliver earnings after generating this top line growth that of an 18% operating margin.

For company, of our size particularly one that just went public, and it has to absorb the cost of being a public company. I think that was a pretty remarkable feat and that was consistent with our operating margin of last few years. And as most of you know who have looked at our company, we do focus a lot of our attention on what we spend money on, what our costs are, and making sure that anything we spend money on it makes very good business sense for the company longer-term.

Our non-comp expense ratio is actually the dollar amount, and increased just 7% last year. That was with 7.5 months of being a public company and as a percent of revenues. Because of faster top line growth, that ratio fell to 24% from 26%. Now, we have to absorb Sarbanes Oxley's costs this year, and we have to be compliant by the end of '08. We saw a little bit of that in the fourth quarter in our non-comp expense, and you will see more of that in the next few quarters as we ramp that up.

We also have, additionally, a full year of extra shares that we issued in the IPO outstanding to compare against, going forward. Now we feel like as we get into '09, we are going to get some more leverage on the non-comp expense line that will be able to pass through to our shareholders, and hopefully get into an operating margin levels, somewhere in the 20% to 25% range over the next three to five years.

If we are successful at that, our operating earnings growth will grow quite a bit faster than our top line growth. And we continue to plan to return that capital to shareholders, a third of which will be in cash dividends, and the other two thirds could be some combination of share buybacks or other growth opportunities that come our way in the next few years.

Before we open up for questions, I just wanted to mention briefly our stock price. Obviously, it's dropped 45% since we went public. At first there was a curiosity, but I think at an enterprise value of $0.50, plus or minus a share. It's become from our point of view a great opportunity. And we've announced another 2 million in share buybacks.

I've mentioned it over and over again, but basically we can't find anything that we can do with our capital in the public market, that’s more interesting right now, than buying our stock back aggressively. So, we plan to pursue that.

I'd also like to point out, which I did at the beginning of my comments, that the headwinds that hit us for most of all of last year that we navigated successfully continues this year. And while we are very hopeful that a year from now when we are reporting our 2008 results, we'll have equal success.

We also have our eyes and ears open. We are spending a lot of time looking at some opportunities that are coming along that are created by this industry downturn that could advance the ball for us quite a bit more than that 10% to 20% top line growth that we are targeting from an internal point of view.

And with that, I'd like to open it up for questions that any of our investors might have, we are all here to answer them. Thank you operator, could you take the queue.


SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

1509 Views