When JMC Group releases its earnings results each quarter, its peers take a keen interest.

Because the San Diego company is the only publicly traded investment marketing firm for banks, its financial statements give insight into problems faced by the dozens of private firms that likewise serve bank brokerages with sales representatives and back-office support.

If the firm's 1995 performance results stand as a proxy for its contracting industry, survival for many players will hinge - at least for the time being - on skillful downsizing.

Earlier this week, the firm, known to its clients as James Mitchell & Co., reported 1995 net income of $1.7 million, compared to a loss of $2.3 million in 1994.

But that earnings jump wasn't attributable to the good fortune of an expanding business: The firm cut operating expenses in half, outpacing a 38.9% decline in revenues for the same period.

Like its competitors, JMC is contracting in size as its clients bring their brokerage operations in-house. The largest banks are either dismissing these firms or dramatically reducing their roles.

As a result, the company is now forced to target community banks.

"The financials show we're positioned to do that," said chairman James Mitchell, referring to his firm's debt-free balance sheet.

Much of JMC Corp.'s drop in expenses in 1995 resulted from reductions in salaries associated with transferring 60 sales representatives to Barnett Banks Inc., Jacksonville, Fla., which had been the firm's main client.

The $41.2 billion-asset banking company, which began bringing its operations in-house in 1994, once contributed as much as 75% to JMC's total sales, and more than 50% to earnings.

Mr. Mitchell recently entered a marketing alliance with USBA Holdings Ltd., an Atlanta-based firm that provides auditing and consulting services to 1,000 small and medium-sized banks. USBA also has relationships with third-party companies that offer related services to 3,000 additional banks.

"We've got our blinders on and we're ready to go after 4,000 new bank clients," Mr. Mitchell declared.

USBA Holdings has agreed to exclusively recommend JMC's services to its banking clients in exchange for $1.5 million, plus one million common stock warrants exercisable next year.

"The prospects for the future hinge on this new relationship with USBA Holdings," said David M. West, an analyst at Davenport & Co., a Richmond, Va.-based securities firm.

Mr. West said community banking programs are more stable and less expensive to run than those at the nation's largest banks.

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