Citizens Financial Group, Inc. (CFG) Q4 2007 Earnings Report, Transcript and Summary

Welcome to JMP Group's Fourth Quarter 2007 Earnings Call. Today's call is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Andrew Palmer, JMP Group's Head of Investor Relations. Please go ahead.

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.

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?

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…

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…

(Operator Instructions) We'll take our first question from Devin Ryan with Sandler O'Neill, go ahead please.

Good morning, guys.

Hi, Devin.

Hi, Devin.

It looks like there are eight deals in the public equity underwriting pipeline, but obviously not much has gotten done, since the end of January. I just want to get your view on what it will take to get these deals done, do equity market valuations maybe increase significantly from here? Do we need to see some large deals get completed? And then also are there any sectors that are looking more optimistic than others?

We are happy to have Carter Mack who runs investment banking, he can maybe give you some more details, Devin. But basically you guys see the numbers and there haven't been a lot of offerings done in the first quarter, so that's obviously going to impact us like it will everyone else. I think that we're a little bit more diversified maybe than a lot of our public peers. Carter, do you want to give him some details on that?

Yeah, I mean we have, I think you said eight deals filed and a number of other deals that were mandated on, that were in different process of drafting or getting close to filings, and I think it's difficult to say when the IPO market opens back up, there is obviously large transaction next week with VISA that is a pretty bellwether transaction, but I'm not sure that's the catalyst to open the IPO market backup. We have a number of deals on the life sciences and technology side in the pipeline, and I think we just need to see an improved equity market environment overall for some period of time for the investors start to care again on the IPO front.

I mean I think that it’s safe because it’s the middle of March and if any of those deals aren’t currently starting a Road Show it’s not going to happen in the first quarter and not just for JMP but for everybody. So I think you know that at this point that’s pretty sure.

Okay

Most of our activity are in the equity underwriting front in the first quarter. Almost all of our activity has been in follow-on equity offerings for existing clients.

Then you mentioned other deals you've mandated on, I guess just to follow-up there then. Can you describe kind of the level of conversations that you're having with companies? Are you still having these conversations or is that activity just also slowed, I guess on the cap raising and advisory side as well?

No I think we're still having a fairly active dialog with companies and I don’t think companies are yet shying away in great numbers from pursuing the IPO route. We had a very successful pre-IPO conference about a month and half ago, where we had 40 private companies there that all were looking at the IPO market and our advice has been to continue to move ahead and to target, with the six months timeframe between filing and actually getting the deal done, what the market is going to look like at that time. So we continue to move ahead with a number of transactions and the ones that are on file are looking at the market and trying to determine when the right time is, to go out, but so far we're not seeing a rush to broaden market deal.

For the purposes of you guys looking at us or anyone else that’s in that business or what you think we are going to earn this year, that’s a part of our business that’s difficult to predict, and in the business itself is not that easy to predict on a quarterly basis. So I think that you guys need to make your assumptions industry wide about what the stock market does and when stability returns. I think you probably need a period of stability for a 4 to 6 weeks timeframe, and then you will start to see the better quality companies that are on file, venturing out into the public market, and if they do well, that will probably encourage others to follow. So this is a kind of industry wide guess then on your part Devin.

Right. Okay and on the advisory side, there are always advisory deals that aren’t disclosed specially on the smaller size. Can you give any detail on just what you are seeing there and even on the pipeline if you can from the advisory perspective?

In advisory side we continue to see good activity, we had a really strong fourth quarter with the number of deals closing. We have had reasonable activity in the first quarter; our pipeline today is about what it was at the end of last year, at the end of third quarter, while we have had some deals closed out of the pipeline, we’ve added others. We are definitely starting to see some slowdown on the M&A front. I think there is a bit of revaluation going on, with buyers looking at what’s happening in the public market. A lot of our M&As is with private sellers. So you wouldn’t see that in your pipeline, but we continue to see a fairly robust activity on the M&A side. I mean we are in the more, smaller and middle market, I think the larger market leverage. Leverage part of the market is gone down significantly with private equity buyers being on the sidelines. But our part of the market continues to be fairly active with more strategic buyers than just private equity.

Great, okay, that's helpful. And Joe you spoke about the investment in New York Mortgage Trust. Just wanted to get a sense of that you're seeing similar type investment opportunities and if you can detail the kind of opportunities that you're seeing in this market or just given the dislocation we are seeing primarily in the housing market?

We've been seeing a lot opportunities, since before we went public, Devin. I think that we try to stay pretty disciplined in terms of balancing risk in return. I think that there is a number of other opportunities currently out there in the mortgage related space. I think that we look at New York Mortgage Trust as a platform that we think is scalable given they're below fixed cost. It's highly scalable from here and that's our partner in terms of trying to take advantage of a lot of these opportunities that we might see. So, we are hopeful that we can access some growth capital with them for those opportunities. I think from a JMP Groups point of view, we have a certain amount of capital, and we are really looking at not putting it all into one sector in the economy or the market for risk management reason. So, we are looking at our capital base to not just buyback our own stock down here, but also to look at opportunities in more growth capital areas and supporting private equity funds, where we put an investment of our capital up against and stuff like that. So, but there're quite a lot opportunities to invest right now as you can imagine, and the returns are interesting, so we are always looking. We looked at a lot of things before we did New York Mortgage, and we didn't end up doing any of them. So, you just don't know, but we are optimistic. I mean Devin, if we can buy our stock back with our capital at enterprise value where it is now or even higher. I mean I think as the largest shareholder, that's me, and it's a pretty good use of our capital without taking a lot of extra risk. We kind of know what our businesses that we are buying back, right.

That's great. Thanks for taking my question.

Thank you.

Thanks.

We will take our next question from David Trone with Fox-Pitt. Go ahead please.

Thank you. Joe, do you guys or Carter, do you guys see any potential for wave of equity raising and consumer finance.

Hey, Dave, how are you?

Good.

Yes, I think that it means this down turn in kind of mortgage in specialty finance and housing didn't just started in the second half of the year, as we all know. I mean we detailed the impact on us from '05 through '06 in the part of '07 in our IPO road show, right. And it was muted because of some of things that helped us have a good quarter and a good year in, for the full year in '07. Like product and industry diversification, but it has obviously gotten worse in the last six months. But I think that one of the things that we're looking forward to at some point here, and typically once the fed starts cutting short-term interest rates aggressively, with some lag, you start to see financial services stocks bottom out in for a month. That obviously hasn’t happened yet. But when that happens, you've basically eliminated a lot of public companies in the space, either through consolidation, or they got bought out, or through they went out of business, or they bought back a lot of their own shares. And it typically happens, it’s just the time that people find themselves very underweighted in financial services, and there’s not a lot of available shares to buy. So, these stocks tend to respond very quickly to that scenario, and go up in price. And companies still have great opportunities to expand for a couple of years thereafter. So, they are typically out there to raise a lot of new capital. So, you know we weren't established as a company back in 2001 and 2002, and started to by '03, but financial services revenues for instance in '05 or in '04 were over $30 million. So, I think if we had been a little bit more developed as a company then we would have done pretty close to $50 million to $100 million in that time period by perspective to now kind of thing David?

Yeah

But we are very optimistic that at some point in the next 12 months a typical cycle will play out here from the fed rate cuts, and well established companies that have survived here will be asking for more capital to expand, and we're hoping to work with them to accomplish that.

Okay. And if I understood you correctly, at one point you mentioned the possibility of an acquisition, and correct me if I misunderstood that, but if that was true, would that be product industry or geography focused?

I think we are always looking, I don’t mean to imply that to expect an acquisition, because we tend not to be the best acquired to be frank. I mean we actually care what our return on investment is and strategic objectives, not withstanding, we want to make really attractive return on our capital without assuming a lot of things happened, right. So, in the past there were a lot of other people that had different hurdle rates than we have that are much better acquirers. Now, if we get into an environment where there are some opportunities where we can get our kind of return on capital bogey, say, yes we will definitely look at them. We haven’t been in that environment yet, maybe that will happen as this year unfolds. But there aren’t any acquisitions we are currently looking at, I didn’t mean to imply that.

We are seeking opportunities but there is no nothing that we are looking to do discussions on.

You have a pretty solid profit margin and some of your publicly traded peers are struggling with that. And obviously if this were to linger on for several quarters, it seems like some folks might get into a bit of trouble. And you know if it’s a good franchise and it’s cheap and I know your stock is, I know you are disappointed with that, but you do have some cash. Is that something that your could potentially do, maybe pickup an ailing competitor that has good franchise in a certain industry.

Yeah. like I said it’s the business we are already in. so we think we know the business pretty well. And you have to evaluate exactly what you were looking to buy, right.

Yeah.

It may be they are different then what you would look at as a analyst kind of thing.

Yeah.

As we kind of be looking at what we could keep and then bake on that. If you put companies together in our space, I don't think one plus one equals two by any means.

Right. Yeah.

So it may be a very different kind of analysis than you would look at as just an outside analyst covering the area. And then of course whatever we capped in revenues we would have to think that we can deliver after cost, earnings that were at a level that was a very attractive return on capital plus, as well as the effort. Because this kind of things take a lot of effort and it's all about that we could be spending doing something else for the shareholder. So I could say we are not the best acquirer in my experience. But that doesn’t mean we haven’t looked at things in the past and wouldn’t look at them in the future. And if we really got into an environment where desperation occurred and we’d be looking at taking advantage of it. But I don't know if that answers your question, the way you want it answered. I don't want to build any expectation that we are going to be aggressively roaring up in this industry or anything.

Yeah. Sure. Okay. and that you know at six bucks a share does that, how do you think about the possibility if were to linger there of to say, “to heck with that, lets go private again”?

Well. I think was a lot of effort to go public. Actually it took a year. I mean obviously as a private company, some of the costs that we have as a public company will go away, and whatever our profit margin is 18% last year, would have been quite bit higher without that, right. But I think the only way to really do that would be to borrow money, right?

Yeah.

And I think that..

Or a private equity.

Well, but then they would borrow money on us, right?

Yeah.

They typically lever these things. I think in this environment, leverage is very expensive especially for businesses that are more of a volatile quarterly or annual outlook. I think that if we can buy our stock back below cash. I don’t know how long that situation can last, but we are buyers, not just for the company, but I think you've seen quite a bit of insider buying, and you have these very long conservative blackout periods, so you go through that. We've been in the blackout period for three months now. But you may see some employees or insiders buy stock, when that lifts next week or type of thing. So we are largest shareholders and we're buying more.

Okay, good. Well, thank you very much.

(Operator Instructions). We'll take our next question from Patrick Davitt with Merrill Lynch. Go ahead, please.

Good morning, guys.

Hi, Patrick.

Hi, how are you doing?

Good.

You mentioned the large mandate in asset management in January, could you give us an idea of where that went, particularly did it go one-time to multiple funds?

Well, there wasn't really a mandate. This is just normal business as we are trying to raise assets around performance. So within our three different asset classes the hedge fund business is actually stabilized as we went through last year, and it has been growing. So, a lot of assets have been going into our small-cap fund that has a great track record now for over two years, and a true hedge fund as opposed to just a long buyer’s fund. So, in this kind of environment people are valuing as they should someone, who actually is hedged and still can produce very attractive returns. Our fund-to-funds business which is the Masters Fund series, the larger established masters investors they were up last year was at 15%, 16% -- 18% up, that's unheard of performance and it's been 30% or better every year for the last three to four years. So, a lot of this is blocking and tackling, but that's over $100 million, and now it gets to its size, we're there are on the radar screen for the first time for institutional investors, and that could scale up pretty quickly from here and we pretty optimistic there as well. In our kind of private equity or direct investment area, there has been a lot of effort in that area from a product development point of view and we're hopeful as we go through this year that those that assets class starts to drive some growth and assets under management.

Okay, great. And do you see yourselves trying to see maybe a new distress type fund given all the distressed assets out there is it?

Well, I think we ceded the fund last year that is in those numbers by the way, called Expo, which is Life Sciences, Healthcare Fund in LA run by a guy named Paul Sinclair, that started in April of last year, and I think end of the year it over a $100 million. And he just did a great job last year with managing the money and there is a lot of excitement around that. That is in those efforts under management numbers, but will be in our other income or piece of his fees that we get from that sponsorship going forward.

How much of that do you?

What's that?

How much of it do you get?

I'm not sure if we've disclosed that anywhere, but it's a kind of an industry standard arrangement, so just similar with quite a lot of these things, it's been more to that. We're always looking at sponsoring funds. Right now, we have a fund in the market that's more in the venture space, called Lake Street Partners III, that’s out there marketing, it's going to traditional LPs and those types of funds. We have a opportunity fund, we are out there in marketing in the real estate area as well. There are just on trying to raise money now though, so there is nothing really-- we are optimistic there is good response, but we haven't had a first closing yet in those. From a distressed point of view, we'd like to think that New York Mortgage, we're a significant shareholder, and after the PIPE we still own a little over 20% of the company. We are optimistic that they have an NOL and we are optimistic that we might be able to access some growth capital and take advantage of some of those, kind of opportunities in the mortgage space as we have done with our partner. So with their NOL it's more tax efficient to look at that as a vehicle maybe in the kind of mortgage space to take advantage of problems that we are all seeing.

Okay. And real quickly, I believe Granville’s transaction closed on the fourth quarter, correct me if I wrong?

Yeah.

Can you give us an idea of how much that contributed to the investment banking?

In the fourth quarter it was $3.75 million. There is another smaller fee related to that I think in the third quarter too.

Okay, great. Alright, thanks a lot guys.

Okay.

Thank you. We'll take our next question from Aaron Cadell with Hovde Capita. Go ahead please.

Hi, good morning. How are you guys?

Hi, Aaron.

I was just wondering if you could talk quickly about the private placement pipeline in addition to New York Mortgage, looks like you did a deal for AmeriTrust, you talked a little bit about M&A and equities, I guess public equities but what's your pipeline like on privates?

I'll let Carter answer to that.

There are couple of different areas on the private side; our pipeline in actual true Reg D private placement is been growing and we are out in the market with a number of deals right now. Probably on the two private side as big as it has been for a long period of time. On the PIPE side we put a lot of effort into growing our PIPEs business. I think the New York Mortgage Trust was one example of a nice deal in that sector. We are in lots of discussions with potential issuers on the PIPE front and I would expect to see more activity in that area for us in the next few quarters.

So can you add up what the number of deals and the volume reflect the traditional -- all the things you mentioned, how many deals and any sense of size in terms of overall volume you are trying to raise.

No, we haven’t disclosed any of that probably before, other than just general colors. As Carter said, we have been trying to build that area before the collapse of the public equity in markets here. It’s been a three year effort basically that in our M&A business. And last year, on revenues and investment banking they were up 12% from the previous year. The percent coming from M&A and privates was 61% compared to 27% three years early on a much-much smaller revenue base kind of number. So, I think the message we want to send you is that we are not just deciding today, with the decline in the public markets, to get into those businesses. And there is a lot of activity in those businesses. And we are hopeful that kind of percent of our revenues this year will be maintained at 60% or even higher. It’s kind of what’s in the back log right now, is it similar or higher mids.

Got it. okay.

Okay.

And then I have a few questions just on the balance sheet. First, what was your tangible book value at the end of December?

We don’t have any goodwill, so it’s the same as the 560 number that Thomas gave.

Okay. And then what was the cash or should we just subtract out what you bought back, so the cash balance as of December 31st?

Well it’s all in that press release, but it's $5.37 per share in net cash. Now, net cash, we are regulated company, so we do need capital to broke or deal, or to underwrite public deals. So just keep that in mind. But that’s a measurement that you can compare from industry to industry I think so it’s relevant.

And also that includes some marketable securities that we feel are fairly liquid.

Okay. So would that include restricted cash then?

No.

Okay. So, that's cash and then liquid marketable securities. And then what were the other investments at the end of the quarter?

They are investments in our hedge funds.

What was total?

Those number will all -- there is going to be...

It's about $28 million, and the number will be in the K that we will file late this week.

Yeah, it will be all broken out by exactly fund by fund, and we give pretty big disclosure on all that stuff for you, and that will get filed probably tomorrow.

Okay. And then lastly I am just trying to add up all of the investments in your mortgage trust. You invested $5 million before they get the capital raise as you invested $4.5 million in the capital raised and then you own 50% of the REIT which invested $10 million?

Exactly so...

So total that up, it is $14.5 million?

Yeah.

And then what's the book value of New York Mortgage Trust, do you know that?

I think that you mean as of yearend they haven't reported their results yet. So, it's a public company so I really can't comment on any of that.

Okay. And so then when you say that you are...

I think they are going to report next week just to give you a timeframe so.

And then last question just one that you are talking about before this enterprise value $0.50, that basically that’s just the current stock price less the net cash is that's kind of the differentiator?

I realized that for financial services investors that's not a measurement that people talk about, that’s not because most financial services companies have a big balance sheet that's levered but yes, that's measurement that people look at in cross sectors on Wall Street. And given that we don't have highly levered balance sheet and we are mostly a fee-based business I think it’s an appropriate measurement to look at for a company like our as well.

Okay and then your blackout period on the buyback would be open sometime in next week or afterwards?

The blackout period on the buyback will open up on Monday I think I have to double check that, but I think it is Monday. We have been using one of these plans though, for the company. I think it is in par with our plan. So we haven’t been restricted in terms of buying back stock and we did as you saw in the fourth quarter. The issue is, we completed our buyback, and the blackout period was still in effect. so we couldn’t announce a new authorization until the blackout period ended.

Okay. Alright thank you taking all my questions.

Sure. Thanks.

(Operator Instructions) we will take our next question from Lauren Smith with KBW. Go ahead please.

Hi guys good morning.

Hi Lauren.

Hi Laura. Lauren Smith – KBW: Just a couple of quick ones and my apologies if I missed this early on, but with respect to the comp ratio, could you give us just a little color there perhaps how should we be thinking about it going forward? I mean it would certainly higher, than I had expected as we move into’08. Maybe just a little help in that regard and then if you also with respect to comp could you refresh our memory what is fixed versus variable or cash, the mix of cash versus stock and compensation?

Sure well I think, that the comp ratio was well with in that 60% level that we talked about in the IPO. And I think one of the reason that you might had, as did we, a lower number than 60% was some piece of that was going to come in; in the form of stock-based-comp, which at least in the first year doesn't show up in your comp expense and then to get amortized thereafter okay. So, the real difference between a 60% ratio, which we've been accruing for in our operating businesses and what it ends up being the main difference might be, stock-based-comp. So, I think that would be the difference. So, I'm not sure what you were using in your model for that. But for us, we made a certain estimate at the beginning of the year of what that would be, and as we implemented that plan at the end of last year, we only have 200 employees. So, we like to try to involve for a broader group of people then just 3 or 4 of us making these kind of decisions. So, we actually spend some time in round tables, and had a committee to review what was the right number there, and we came to the conclusion that especially the lower end of the comp scale that probably stock-based comp wasn't appropriate versus what we had originally thought, when we made that forecast at the beginning of last year. So, it ended up stock-based comp, as you will see in the queue, ended up maybe a little bit less than, what we had originally thought. And that means the amortization of it in '08, in '09 will also be less. We would estimate the data counted for about somewhere between $1.5 million -- say $1 million to $2 million of higher comp expansion in the fourth quarter. And I think that would also not have to be amortized going forward, but that would have been the number that was different than what we were thinking in our outlook.

Okay. And then the mix of cash versus stock on a percentage basis, I mean obviously I'm sure it varies depending upon certain threshold, but just kind of broadly speaking if you could refresh for us what's that mix effect?

Well, it will be in the K, so you might you just wait one day so that comes out you'll see the exact numbers, but I think that there is a stock base comp metrics that we have, and so it's estimate going forward and I'd say for '08 and going forward at least for '08 somewhere between 5% and 10% in that range of total comp. Okay and that would exclude section 16, the five of us, because our stock-based comp as a percentage of comp was much higher than that. So, this just relates to the 197, other employees somewhere between 5% and 10%. It was at the lower end of that range last year.

Okay. I imagine over the next couple of years I mean that would gradually trend higher, right?

Well, we are hopeful. I mean the thing that would drive it higher is that the people that we have are producing a lot of revenues and graduating into higher bands on that matrix. Lauren Smith – KBW: Okay, great. And just one last question, when I look at your year-on-year growth in your commission revenues, it really stands out relative to peers, Wiesel was up about 20%, PIPE a little less than 19%, and Jefferies and Cowen were down substantially, much of that, certainly the markets and volumes were conducive over the course of the back half of the quarter. But how much would you attribute that to or maybe just give us an update on how think integration and on the institutional side and your geographic expansion there, like into Boston how those sorts of things are progressing?

Well I'll let Mark Lehmann, who runs that business for us, answer it specifically to some of those questions. But just to be clear, our commission numbers are net of trading losses, and some of those companies you mentioned gross up their commission dollars, not all of them. So, you have to compare it on an apples-to-apples basis. And then also we haven’t expanded into foreign markets or the like this is pretty much de novo growth in the areas that we're already in, with that I'll have Mark give you some more details.

Yeah Lauren, I think we've done a couple of things that has been received well by the buy side. I think, like you said, we've expanded further in the east coast. We've also, I think penetrated some of those accounts that we just weren’t in previous year and we've done that with a combination of increasing our productivity of our personnel, as well as just going deeper into those big buy side accounts. I think at our trading desks also we had some personnel changes that we brought out in the beginning of the calendar year '07. And it takes a few months for those to season and the really seasoned in the back half of '07, and we are seeing some of that in '08. And we are just again, as you know from this business with following it as you have, it's basic blocking and tackling and being there for your customers. And I think the capability of our trading desk, as well as the conflict free trading that we do every single day is resonating on the buy-side, where as obviously some of our competitors don't have that.

We don't do any proprietary trading.

We don’t' have any proprietary trading. We don't have a prop book etcetera and I think as you've read more and more and you follow this industry again for a long time. I think some of that is having a tough time for some of our sell side competitors.

Okay great. And I guess, just lastly, when you mention you are trading losses, were there any meaningful shifts or increase there in the fourth quarter?

Yes, I think there was. And I think that we've said in the past that we have a capital profile out there. That we are hopeful that our trading losses are within the 10% to 20% of gross commissions' range. And obviously we like it at the lower end of that range and last year it was at the high end of the range. When what derives that is in us making proprietary trading bets, one way or the other; it's just the volatility of the market, so fairly we all know how volatile the market was in the fourth quarter last year.

But also the peak of the trading losses for us was in the third quarter, the fourth quarter was much similar to the first and second.

Yeah, this is Craig Johnson. I just want to point out too, that one of the foundations of this business, picking that small cap, mid cap research arena is actually having senior analysts that the buy side wants to hear from. So, what really drives our business is a growing appreciation hopefully and need for input from our analyst who are covering stocks that are really under-covered or are not covered effectively. So I think the institutional community continues to vote for our people on a greater basis quarter-to-quarter which you know bodes well for the future for us. Again, we've got 19 senior analysts, which are really having an impact and beginning to have an impact at a broader account base.

Alright thanks very much guys and congratulations on a good year.

Well. Thanks. I don't know if there any other questions, operator?

No. There appears to be no further questions at this time, sir.

Well, we appreciate your interest in the company and we look forward to give you an update I guess in about 6 weeks on our first quarter results. Thank you.

Thank you.

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