RF Capital Group Inc.

Harris Fricker – Chief Executive Officer and President Deb Starkman – Chief Financial Officer

Thank you. Good morning, and thanks for joining us as we walk through GMP's second quarter.

With me this morning is Deb Starkman, our CFO. Before we get started, I would like to remind you this call is being webcast and will be available for subsequent replay.

Our remarks today may contain forward-looking information and actual results could differ materially. Forward-looking information is subject to numerous risks and uncertainties.

Certain factors or assumptions applied in forward-looking information can be found in our 2016 AIF and our second quarter MD&A. These documents are available on our website and on sedar.com.

Market conditions this quarter remain challenging for independents in Canada, especially given their focus on small to mid-cap companies and current investor emphasis towards liquidity in larger cap names. In particular, client activity in mining and oil and gas remains at extremely low levels.

The value of industry-wide mining and oil and gas underwriting transactions completed in Canada during the second quarter decreased 54% and 39%, respectively. Without doubt the risk-off trade in Canadian commodities remains powerful and a significant performance headwind.

This multi-year trend has been exacerbated by the outflow of foreign capital in the Canadian oil patch in favor of the better operating and regulatory environment in the U.S. energy sector.

We believe the obvious lack of collaboration between industry and government of essential Canadian energy infrastructure mainly pipelines has without questions hurt Canada's global energy competitiveness. Unlike Canadian producers, the U.S.

benefits from existing pipeline infrastructure, a more competitive tax system and energy friendly administration, and most discouragingly and industry north of the 49 that suffers from self-inflicted regulatory and political obstruction. In the current environment, Canadian producers remain price-takers with the U.S., a single largest energy competitor setting the price.

In spite of this market for backdrop, we remain profitable this quarter generating adjusted earnings of $1.6 million per diluted earnings per share of $0.01. Our Capital Markets business benefited from increased investment banking revenue including incremental revenue since the GMP FirstEnergy transaction.

Richardson GMP also continues to build on its earnings momentum posting adjusted EBITDA of $11.5 million this quarter. Our reported results this quarter were impacted by significant non-cash impairment charges in our capital markets business.

These are outlined in our disclosures documents released earlier today. Deb will provide greater detail later in the call.

However, it is important to note that these are non-cash charges taken in accordance with accounting standards and have zero impact on regulatory or working capital. With that, let's take a closer look at our results for the quarter.

Total revenue of $44 million increased 7% from Q2 last year. The increase was largely due to higher investment banking revenue, led by broad growth across multiple sectors.

Currently offsetting the increase was lower return from principal transactions including lower fixed income trading revenue in the U.S. Second quarter results were impacted by several adjusting items including the aforementioned non-cash impairment charges, which equated to $52 million and are related to goodwill impairment, and the deferred tax asset write down in connection with our U.S.

fixed income business. For the first half of 2017 GMP's adjusted net income was $8.6 million, up substantially from a net loss of $3.6 million in first half last year.

Revenues are up 7%, while expenses after adjusting items decreased 5% thus demonstrating the Firm's enhanced operating leverage. Adjusted diluted earnings per share, was $0.08 versus a loss of $0.08 last year.

Let me now discuss the quarterly financial highlights for each of our business segments. Capital Markets reported adjusted pre-tax earnings of $2.6 million in the quarter compared with pre-tax earnings of $1.5 million in the same period last year.

Revenue of $41.5 million rose 7% from Q2 last year, largely driven by a 35% increase in investment banking fees and higher interest revenue. Let me expand further.

Investment banking is up 35% from Q2 last year and 53% from Q1. The increase relative to Q2 last year was driven by a 26% increase in underwriting revenue and a 58% rise in M&A fees over the same period.

Underwriting revenue benefitted from an increase across multiple sectors including transactions for CanWel Building supplies, Bluestone Resources, MedReleaf and Goodfood. The increase in M&A were largely driven by stronger revenue generation in our U.K.

and Asia business groups. We are beginning to see some signs that conditions in energy maybe improving, however that optimism is understandable measured given the false rallies in crude prices over the past year.

That said, following a decline toward the end of the second quarter, WTI prices have rebounded through $50. We are also beginning to see signs of an investment pullback in the U.S.

shale regions which may address global glut issues. And third, and perhaps most importantly, we are seeing some savvy domestic energy investors make significant asset acquisitions in Western Canada which may suggest we have reached bottom or are very near it.

At the very least the magnitude of these investments is a much needed confidence for the Canadian oil patch. We continent to focus on growing our banking capabilities outside of commodities and have strong franchises and sectors in the healthcare technology, industrial financials and real-estate sectors.

In equity sales trading, commission revenue decreased 5% to $10.5 million this quarter. Incremental commission revenue since the GMP FirstEnergy transaction was not sufficient to overcome a general pullback in client trading volumes, including the rationalization of certain businesses in Q3 last year.

As mentioned during prior calls, following the addition of GMP first energy, we're now one of the most active traders of energy in mining securities in the industry. Principal transactions generated net gains of $2.8 million this quarter, down from net gains of $8.9 million in Q2 last year.

The decrease was led primarily by lower fixed income client trading activity in the U.S. and lower returns from principal inventories.

Fixed income trading revenue dropped to %6.4 million this quarter from $9.7 million in Q2 last year. We continue to believe there is strategic value in terms of activity levels and market intelligence in this business given it's very low capital intensity and the expectation from clients that we remain highly conversant across both the equity and debt capital market spectrum.

Lastly, increased volatility in the alternative mortgage lending space this quarter contributed to record interest revenue performance in our stock borrowing and lending business. With that, let's turn to the Wealth Management segment.

Richardson GMP recorded adjusted EBITDA of $11.5 million this quarter, revenue of $70.4 million increased 9% from Q2 last year, largely due to higher investment management fees, on increased client activities and a 9% year-over-year increase in client assets. Richardson GMP ended the quarter with AUA of $29.6 billion, total team counts stands at 187 with average assets per advisory team of $158 million.

With that, I'll turn it over to Deb, to discuss expenses.

Thank you, Harris. As mentioned at the start of the call, total expenses this quarter are included in non-cash goodwill impairment charge and our Capital Markets segment.

During the quarter, we performed an interim goodwill impairment task in accordance with applicable accounting standard, having considered multiple factors which are outlined in our MD&A and financial statements. We determined that the recoverable value with the Capital Markets CGU was less than its carrying value and accordingly, we recorded a pre-tax non-cash goodwill impairment charge of $52 million.

Concurrent with the goodwill impairment, we also recorded a deferred tax asset write-down of $7.7 million associated with the Firm's U.S. operations, which is recorded in income taxes.

Both charges are outlined in our non-GAAP measures table and our MD&A and earnings release. And as Harris mentioned in his opening remarks, these charges have no impact on regulatory or working capital.

Adjusting for the non-cash goodwill impairment charge as well as the 3.6 million share base compensation expense related to the unvested common shares issued to former FirstEnergy shareholders, which we consider as part of the purchase price notwithstanding this accounting treatment, total expense increased 6.9% or $2.9 million. This increase is largely attributable to two items.

First, we experienced elevated levels in interest expense due to market volatility. This increase in activity added $2.1 million in incremental interest expense, however as Harris noted earlier, the record interest revenue performance more than offset the increase from the business profitability standpoint.

And second, incremental expenses since the close of GMP FirstEnergy transaction in late September also contributed to the increase. Let's take a closer look at the components of expense projecting for share-based compensation in connection with the unvested shares issued to former FirstEnergy shareholder.

Employee compensation expenses decreased 2% from Q2 last year, largely due to lower share based compensation. Non-compensation expenses increased $3.4 million or 23% from Q2 last year largely due to incremental GMP FirstEnergy expenses and higher interest expense in connection with stock borrowing activities this quarter.

Fixed salaries and benefits are up 9% largely due to the additional of GMP FirstEnergy commencing late third quarter last year. Share-based compensation is down 45% largely due to the exploration of certain prior year incentive arrangements in capital markets.

Variable compensation is largely unchanged. And now, I'll turn it back over to Harris for closing remarks.

Thanks Deb. This quarter's performance highlights the ongoing importance of maintaining a lean business and safeguarding capital and liquidity, and that is precisely what the management team at GMP is doing.

We have delivered positive adjusted earnings in three straight quarters and this in operating conditions that could be charitably termed as daunting. We have both, energy and mining markets at multi-year lows, pronounced and sustained sell-off in Canada and a multi-year low in the small to mid-cap sector.

And still we remain profitable. For first half 2017, revenue growth is exceeding expense growth which demonstrates a considerable operating leverage in our business to an upturn in market conditions and with approximately $150 million in net working capital, our capital and liquidity is down and well in excess of business requirements.

Let me conclude by commenting our share price. At current levels, we continue to believe there is considerable value in the stock, which does not reflect the underlying strength of our franchise.

Remember that our employees are the single largest group of GMP shareholders with an excess of 30% ownership. During the quarter, we repurchased $1.5 million common shares for an aggregate value of just over $5 million and we expect to remain active on our buyback in Q3.

This concludes our remarks this morning. Thank you again for joining us today.