Andrew Palmer - Head of Investor Relations Joseph Jolson - Chairman of the Board, Chief Executive Officer Raymond Jackson - Chief Financial Officer Carter Mack - President, Director Mark Lehmann - President of JMP Securities, Director.

Joel Jeffrey - KBW Joe - Barrington Research Alex Paris - Barrington Research.

Welcome to JMP Group’s Third Quarter 2014 Earnings Conference Call. Please note that today’s call is being recorded. (Operator Instructions) I’ll now turn the call over to Andrew Palmer, the Company’s Head of Investor Relations..

Good morning. Here with me today are Joe Jolson, JMP Group’s Chairman and Chief Executive Officer and Ray Jackson the Company’s Chief Financial Officer. They are joined by Carter Mack, President in JMP Group and Mark Lehmann President in JMP Securities and Craig Johnson, our Vice Chairman.

Before we get started, I will note that some of this morning’s comments may contain forward-looking statements about future events that are out of JMP’s control. Actual results may differ materially from those indicated or implied.

For a discussion of uncertainties that could affect JMP’s future performance please see the description of risk factors included in our most recent 10-K. That said I’ll turn things over to our Chairman and CEO, Joe Jolson..

Thanks Andrew. JMP Group posted another good quarter thanks to our diversified business model with operating earnings increasing 28% year-over-year to $0.15 a share, despite a slower pace in the equity capital markets environment.

Excluding net investment income and corporate costs, our three operating platforms earned a record $0.66 per share for the latest twelve months, an increase of 74% from $0.38 per share for the previous twelve-month period.

The strong results drove a 12% increase in our tangible book value per share to $6.32 and also allowed us to return nearly half our operating earnings to stockholders through cash dividends and share buybacks over the past year. During the third quarter, we announced the potential restructuring of JMP Group into a publically traded partnership.

We launched a new hedge fund Harvest Financial Partners and closed our third CLO. I will have Ray go through a few financial highlights before I continue.

Ray?.

Thanks Joe. Adjusted net revenues were $40.3 million for the quarter and a record $134.9 million for the first nine month of the year, up 27%. Operating net income was $3.4 million or $0.15 per share for the quarter, an increase of 18% from the third quarter of 2013. The nine months total was $11.9 million or $0.52 per share, an increase of 18%.

For the quarter, our adjusted operating margin was 13.8% and for the nine months ended in September it was 14.2%. For the quarter, legal and other expenses in connection with our proposed restructuring of the publicly traded partnership were $0.4 million or $0.01 per share after tax, which was included in operating EPS of $0.15.

For the nine months ended September 30, 2014, [such] costs were $0.06 million or $0.01 per share after tax, which was included in operating EPS of $0.52. We have historically adjusted that compensation ratio to exclude any hiring cost related to strategic growth initiatives.

In this quarter for the first time, we have further adjusted the ratio by excluding hedge fund incentive fees from both revenues and expenses. As majority of these fees is passed through to the investment teams when earned. For the quarter, this adjusted compensation ratio equal 62.8% while for the first nine months of the year, it was 64.7%.

Our adjusted non-compensation ratio was 19.8% and 17.7% respectively. For a balance sheet perspective, our recourse debt with total capital ratio was 41% at September 30th. Net cash and liquid securities equaled $2.57 per share and net invested capital, which includes less liquid investments was $6.16 per share.

Stockholders equity all of which is tangible was approximately $137 million or $6.32 per share, up from $6.16 at June 30th. Joe, back to you..

Thanks Ray. JMP securities is nearly completely year two of its five years strategic growth plan which was intended to double the firm’s market share through year end 2017.

In its four targeted sectors, JMP Securities share of US common equity underwriting fees was [indiscernible] basis points for the trailing 12 month period, compare to 90 basis points as the base year in 2012, but also compare to just 27 basis points in 2009 nearly 5 years ago.

Our market share gains combined with the resurge in equity capital market over the last 12 months led to a 65% increase in our ECMP revenues. Our strategic advisory revenues were up nearly 100% year-to-date and we could have our best year ever depending on anticipated closings in the fourth quarter.

For the first nine months of the year, strategic advisory revenues compose 26% of total investment banking revenues compare to 16% for the same period last year.

According to the latest data available from McGlone, our share of institutional equities commissions improved 18% from 34 basis points in 2012, the 40 basis point for the 12 month period ended in June of this year, there is a quarter lag in getting McGlone numbers.

That increased market share more than offset a small shrinkage in the commissions pie in that period of time, and as a result our institutional brokerage revenues was $6.5 million for the quarter were up 12% year-over-year, and our total of $19.6 million for the first nine months of the year increase 9% from a year ago.

We are starting to see an acceleration there in year-over-year comparison. Organic growth through market shares gains especially over multiple years is very difficult. Especially in a highly contested and mature industries that we compete in. Our objective of doubling our market share in five years was never expected to be a layup.

That being said we are very proud of our progress thus far. Asset management related fee revenues jumped 86% year-over-year to $11.1 million for the quarter and we are up 82% to $32.6 million for the nine months. For the first three quarters of the year incentive fees totaled $20.4 million compared to $8.1 million a year ago.

Most of these fees were related to Harvest Small Cap Partners which generated a net return of 5.8% in the quarter and for the nine months 24.4%, just having a great year this year.

We provided additional discloser as Ray mentioned in the press release about the volatile impact of quarterly incentive fees on our compensation ratio in order to better illustrate the underlying trends in our business. At an adjusted comp ratio of 62.8% our operating margin would have been north of 17% for the quarter.

We believe that this added discloser provides investors with a better and more accurate picture of our core business dynamics and our excellent profitability level. Total client AUM including sponsored fees from we -- sponsored funds from which we earn fess equal to $2.5 billion at September 30th, up from $1.8 billion a year earlier.

Hedge fund client assets under management increased by 5% during the quarter to $915 million. Period end 37% of our sponsored AUM was in hedge funds, 63% in private capital strategies. While we have been successful at building our hedge fund business at a compounded rate of nearly 20% since we went public in 2007 with $240 million AUM at the time.

We are strategically focused on investing in the growth and diversification of our private capital strategies. Currently we a $1.1 billion in CLOs through JMP credit advisors. $90 million in small business credit through HCAP advisors.

$114 million in late stage venture, secondary venture capital through Harvest growth capital, and $214 million in multi-family debt and equity investments through River Bank. In our corporate credit segment we have looked to grow AUM since the CLO new issuance market reemerged in 2012.

On September 30th we closed JMP credit advisor CLO-3 with $370.5 million in assets bringing the total AUM in that business as I mentioned to $1.1 billion, that compares to $782 million at the end of last year. JMP group made $7 million investment in CLO-3 sub-nodes that was underwritten at a 15% IRR.

Depending on market conditions we may look to secure new warehouse facility and begin accumulating loans for CLO-4 around year-end. Although we typically take three months to four months for that warehouse line to fully ramp.

We earned a gross return at 6.1% or 8.1% on annualized basis our capital in our hedge funds for the first nine months of 2014, which is a little below our annual budgeting target of 10% but cover the cost of the capital allocated from our 8% long-term debt.

Including principal investments our total return on invested capital was 3.4% for the quarter and 9.6% for the nine months ended in September as compared to 17.5% for last year.

The decline was expected and is primarily due to a decrease in contribution from CLO-1 as it has been in repayment and to the higher cost of our long-term fixed rate debt compared to that of our short-term line of credit. We remained patient in evaluating investment opportunities in the current near zero short term interest rate environment.

We continue to believe that net investment income as we said at the beginning of the year will roughly cover corporate cost this year, as it has for the first three quarters of the year and this particular quarter third quarter covered it by $0.02 a share after tax. In 2014 we targeted a 35% dividend payout ratio.

And we have increased our dividend four times over the past 12 months to an annualized rate of $0.24 a share. That amount would represent a payout ratio of 36% on our latest 12 months operating earnings.

We have also repurchased more than $0.5 million shares in the past year at an average price of $6.51, distributing 21% of operating earnings in this manner.

Our Board recently approved and increased our buyback authorization raising at the 1.5 million shares to roughly 7% of our shares outstanding, to note that’s just in the fourth quarter of this year.

On August 20th we announced that our Board of Directors had also approved their potential transaction through which JMP group would convert from a corporation into a limited liability company to be taxed as a partnership. On October 16th we filed an amended S4 proxy statement perspectives under the name of JMP GROUP LLC.

That document contains complete information about the transaction including pro forma financial information and we encourage all of our shareholders to review it thoroughly. The potential restructuring is subject to a stockholder vote which is scheduled to take place on December 1st for stockholders of record as of October 28th.

We believe that the potential transaction has significant merit for our shareholders and we are enthusiastic about the prospects.

If the restructuring takes place, we believe our dividend payout ratio could increase materially depending on the mix of the earnings from our operating platforms which will remain fully tax corporations retaining a larger percentage of their earnings to support future growth and from that investment income at the publically traded partnership level which would be mostly pass-through to shareholders.

Based on the current business mix adjusted for the restructuring transaction, we believe that the dividend payout ratio could increase to between 50% and 70% of operating earnings and if you look at the pro forma in the prospects you can see looking backwards for the first six months of this year at least the earnings would have been 25% plus higher.

In closing I want to thank JMP’s employees and independent board members for their dedication and efforts, which yielded record nine months results and positioned us to continue our success in the quarters and years ahead. Operator, we’ll be happy to answer any questions..

(Operator Instructions) And you first question comes from the line of Joel Jeffrey with KBW..

Good morning, Just -- I wanted a follow up on little bit.

The advisory business this quarter came in a bit stronger than what we had expected and I appreciate some of the commentary you gave earlier just wanted to see where you really saw the strength in that business? Was there any particular verticals or in any certain sectors and then how are you thinking about it through the end of the year and into 2015?.

You know, Carter Mack here, he is the probably best person to answer that question, so I’ll just turn it over..

Yes, the strength in the third quarter was in the healthcare verticals, we had a one rather large transaction for us that quarter. I would say as we look at our pipeline we’ve seen strength in the technology space and then in the healthcare space and in real estate.

So it’s been pretty across the board but technology has definitely been very active on the M&A front..

And do you see that sort of continuing in the end of the year and into 2015 or this is this more sort of more towards that side?.

Yes, we feel good about the build in our M&A business. You can see it in the numbers and we have already closed one deal this quarter with a number of others that are scheduled to close others that are hopefully will announce before year end, so we feel good about the business going into next year and good about the fourth quarter..

It’s difficult to get market share numbers on the M&A business, but just when you look at our business, it’s in the -- I would say smaller CAP, under $1 billion kind of market CAP or values space and probably within that it’s closer to under $500 million.

So it’s a little bit less sensitive to general market conditions because of that but its most sell-side assignments as well, which is banker or the kind of assignments that you want to get typically.

And we have grown that area through selective hires in the last three years and we have had some people who progressed among the ranks internally here who are doing a really good job, who have been promoted and are coming on strong as well that’s been driving that..

Okay great and then just kind of lastly for me, it looks like the regulators have come out with some new capital requirements for CLO managers, can you talk a little bit about how that might impact your plans going forward?.

Yes, it came out earlier this week and it hasn’t fully been written yet or known -- exactly all of the details, but from what I can gather right now you know it’s a positive surprise.

The original proposal was that if you are sponsor of a CLO that until the -- during the reinvestment period until the pay downs of the notes started to occur after the reinvestment period, you weren’t allowed to getting your equity distributions that was in the original proposal. And they took that out.

So that’s the most material positive, I mean, you never know about these things, but that would have been a negative game changer for all the money managers that manages CLOs if they would left that in there.

And then the other thing that changed is that it’s going to go into effect two years from when they publish it in the federal registry, which hasn’t happened yet probably it will soon. But that’s late in 2016 and the original proposal was January 1st, 2016.

So essentially that gives another year for people that manage third-party capital like we try to do in that business. So for instance our CLO that we closed a couple of weeks ago we put in about 13% of the capital. And that was all at the end when they wanted to upsize the deal and we had the opportunity to co-invest.

So I think it’s -- I am not sure why they are focused on the CLO market in it, since there was any default of any security within and that and in most cases -- almost all cases they were returned to the sub-node holders through that period was very strong.

But it somehow got kind of -- a lot of these things got taken into the [indiscernible] thing, but that being said we think its long-term positive for us. We are a public company with access to capital.

And we think it’s a long-term positive for us and they don’t consolidate managers and short-term it’s positive too because they extended it by a year and made those changes. .

So you don’t view the capital requirements is a negative figure business?.

If we got a crummy return on capital and we had to put the money in, then I would.

But as I just mentioned even in this environment where if you talk to structured finance people, they will tell you that the kind of arbitrage if you will between the price that you can issue these node side and what you can buy the asset side isn’t very good right now. We underwrote to a 15% IRR and that’s pretty good.

And under our conversion, where we convert to new structure here. 15% pretax become 15% after tax for our shareholders for those investments. Which is pretty powerful. I mean in terms of earnings accretion. .

Great. Thanks for answering my questions. .

Sure. .

And your next question comes from the line of Alex Paris with Barrington Research..

Hey guys its Alex and Joe. Just wanted to start, its Joe by the way. On the brokerage business. You guys in the quarter put a decent number of growth, overall industry volumes were down. Some of your competitors yesterday saw some significant downturns.

I am just curious anything in the quarter that drove that? And then maybe second question would be, given the shorts spike we saw in October on volatility did you see trading volume rebound in a big way?.

Mark Lehmann is here. So I will let me start off to answer that question. .

Yeah, thanks. It was a good quarter. As Joe highlighted we did gain some market share. We made some investments about 18 months ago in our brokerage business.

And I think we all know those take some time to season and having some of those people on our platform for well over a year now has I think given us the benefit of some of the relationships and some of the abilities to be more important on the buy side with some cliental.

We have also fortunately seen that continue through October and the volatility certainly was [showing] that we were happy to see in some ways of the volatility up but certainly better than volatility down. I think our risk -- ability to manage risk is also been good.

So I think our upgrades that we have been talking about for several quarters are starting to bear some fruit. So we are confident that we will continue to gain market share. Obviously the volume which is been up significantly in October has helped everybody. But again I think we are on the path to gaining market share.

And third quarter was demonstrating that and is continued into the fourth quarter. .

I will just elaborate on that for a second. We would like to -- obviously you can pick out any number for your market share target. So we picked out a 1% target and maybe it takes us five years to get there instead of three years or four years. But I think it’s a reasonable target given what we do.

Already you are doing as a business, it takes a while dealing with traditional and sequential investors which is the majority of our distribution which is little bit different than a lot of boutiques to get that kind of increased market share because they kind of manage that process over a multiple years.

Even though this is the business that probably isn’t a growing business, although it would be great if it was for the industry. We continue to think that we can grow this at double-digit compounded growth rate over the next five plus years. In some cases the law of small numbers works in your favor and this would be one of those cases we are hoping. .

And then in investment banking. Maybe just talk about what you are seeing in Q4 any vertical? Any strength, weakness and maybe directionally the way you see it? I would happened to be on your website a few days ago and I was looking you guys are pretty good at putting your transactions up there that are pending.

Pretty much they were assumed to be pretty decent volume in October.

Just from a modeling perspective directionally would you expect to see that up in Q4 sequential basis?.

Seasonally we would expect to see investment banking related revenues go up.

And I guess we are just trying to get a better idea of the pipeline going into the fourth quarter, did any deal slip from third quarter to fourth quarter? Things like that given market volatility?.

Yes, I think we had a few deals that ended up flipping to the fourth quarter and my general comment is we have seen a good level of activity so far in the fourth quarter.

We did obviously with the spike in volatility for a couple of week that caused some slowdown in the IPO market, but we just priced book run at the biotech space on Tuesday night, so which has done well and we have a number deals that are out marketing and a number of deals that we expect to launch probably early November timeframe.

As I said, we also feel good about some M&A deals closing and I would say the level of activity is good. And [following] a big change in the market environment I think will see good levels of activity throughout the first quarter..

So, Mark, you’ve said that in the M&A, this favor was healthcare, it was technology, is that the same flavor within IPO?.

Yes I would say that obviously, especially healthcare has been you know active this year.

Probably the biggest year in biotech IPOs as we have seen and we continue to see activity there I would say the other thing that we are seeing is a lot of companies that we have taken public in the biotech space over the last couple of years are starting to come back to the marker with follow-on offerings and we have definitely seen some of that activity early in this quarter and we expect to see more of that as well, so we have new public market clients that are accessing the markets through follow on offerings and that’s another trend, but healthcare has been the most active.

We have seen activity across all of our sectors. We have deals in the pipeline, IPOs in the pipeline across [FIG] and real estate and technology as well, but healthcare has definitely been the most the active..

That’s really helpful. So I just had a question for Joe. Joe, given the Board-approved transaction converting to a publicly traded limited liability corporation.

I'm wondering, what feedback you're getting from the investor base? I know it was your intention to bring this company public years ago in this format, but at that point it was uncommon or it would be too unique to do. So now we are just coming full circle to what you wanted to do in the first place. It's obviously more tax efficient.

Is there any pushback from the institutional community for this corporate structure?.

I don’t think there is push back. There is -- it's little disruptive as you can see in our stock price because some of the shareholders that we thought could own the stock in that structure turned out within the organization where they have this stock.

It wasn’t eligible to take a K1 and that’s something that was difficult to ascertain from the outside looking in.

We obviously looked at who owned our stock and if they own any other publically traded partnership and they all did, but we didn’t know the source of the money within the organizations other that who the PMs were with it owned our stock and so that’s a little bit disappointing.

If this was only 5% or 10% accretive once we learn that, we might have decided not to proceed, but given that it’s 30% accretive it’s pretty hugely material and it’s also that just the short term impact.

You know longer term as I mentioned on our CLOs that are 15% return, in terms from a pretax number to an after tax number to grow the businesses is widely accretive in growing overtime, so absolutely I am a little bit -- I feel bad that it’s been little disruptive to some of our current shareholders.

It’s one of the reasons the board increase the buyback to 1.5 million shares just for three month period here to try to help transition those shareholders that might not be able to -- are not able to take a K1. It’s really not so much a K1 that’s really more of the UBTI issue as it turns out than just getting a K1.

But any case that’s kind of the feedback, I mean, everyone recognizes that it’s widely accretive, but there is a little disappointment that some of our shareholders that can’t own it in that structure..

Got you. It's not as unique as I was suggesting it would have been ten years ago. There's all sorts of alternative asset managers out there with this format that have reasonable amounts of institutional ownership. I'm just looking at Apollo Global with nearly 70%..

Yea that we think will find the institutions are the places within our current shareholder base that could own this stock, they don’t right now, over a some period of time it’s just short-term that I think it turned out to be a little bit more disruptive than we anticipated. .

Alright. I hear you. Thank you very much. And good quarter. .

Thank you. .

And there are no further questions at this. .

Great. Thanks everyone for your interest in JMP and we will look forward to following this up after we report our fourth quarter. Thank you. .

Thank you. And this does conclude today’s conference call. You may now disconnect your line..