News Column

JMP GROUP INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 1, 2014

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read together with the unaudited consolidated financial statements and the related notes included elsewhere in this report. For additional context with which to understand our financial condition and results of operations, see the MD&A for the fiscal year ended December 31, 2013 contained in our Annual Report on Form 10-K (the "2013 10-K") filed with the SEC on March 13, 2014, as well as the Consolidated Financial Statements and Notes contained therein.



Cautionary Statement Regarding Forward Looking Statements

This MD&A and other sections of this report contain forward looking statements. We make forward-looking statements, as defined by the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and in some cases, you can identify these statements by forward-looking words such as "if," "shall," "may," "might," "will likely result," "should," "expect," "plan," "anticipate," "believe," "estimate," "project," "intend," "goal," "objective," "predict," "potential" or "continue," the negative of these terms and other comparable terminology. These forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events that we believe to be reasonable. There are or may be important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the historical or future results, level of activity, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption "Risk Factors" in our 2013 10-K. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our 2013 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K. We undertake no duty to update any of these forward-looking statements after the date of filing of this report to conform such forward-looking statements to actual results or revised expectations, except as otherwise required by law. Overview JMP Group Inc., together with its subsidiaries (collectively, the "Company", "we" or "us"), is a full-service investment banking and asset management firm headquartered in San Francisco, California. 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 four target industries;



asset management products and services to institutional investors, high

net-worth individuals and for our own account; and management of collateralized loan obligations. 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, asset management fees and incentive fees in our asset management business, and interest income on collateralized loan obligations we manage. 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 capital market transactions 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, selling concessions and realized and unrealized net gains and losses on equity positions held in inventory for a period of time to facilitate the completion of certain underwritten transactions. 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 in valuation analyses. We record strategic advisory revenues when the transactions or the services (or, if applicable, separate components thereof) to be performed are substantially completed, the fees are determinable and collection is reasonably assured. - 31 - --------------------------------------------------------------------------------



Private Capital Market and other Revenues

We earn agency capital market and other fees in non-underwritten transactions such as private placements of equity securities, private investments in public equity ("PIPE") transactions, 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 ("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, 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 for hedge funds, hedge funds of funds, private equity funds, HCC LLC (through May 2, 2013), and HCC include base management fees and incentive fees earned from managing our family of investment partnerships and a publicly-traded specialty finance company. Earned base management fees are generally based on the fair value of assets under management or aggregate capital commitments and the fee schedule for each fund and account. We also earn incentive fees based upon the performance of investment funds and accounts. For most of the funds, such fees are based on a percentage of the excess of an investment return over a specified high-water mark or hurdle rate over a defined performance period. For private equity funds, incentive fees are based on a specified percentage of realized gains from the disposition of each portfolio investment in which each investor participates, and we earn after returning contributions by the investors for that portfolio investment and for all other portfolio investments in which each such investor participates that have been disposed of at the time of distribution. Generally, we do not earn management fees on assets calculated on an average assets under management ("AUM") basis. As of March 31, 2014 the contractual base management fees earned from each of these investment funds or company ranged between 1% and 2% of assets under management or were 2% of aggregate committed capital. The contractual incentive fees were generally (i) 20%, subject to high-water marks, for the hedge funds; (ii) 5% to 20%, subject to high-water marks or a performance hurdle rate, for the hedge funds of funds; (iii) 20%, subject to high-water marks, for Harvest Growth Capital LLC ("HGC") and Harvest Growth Capital II LLC ("HGC II"). 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 we consolidate HGC, HGC II and HCC LLC (through May 2, 2013), the management and incentive fees earned at HCS from HGC, HGC II, and HCC LLC (through May 2, 2013), are eliminated in consolidation. Asset management fees for the collateralized loan obligations ("CLOs") we manage currently consist only of senior and subordinated base management fees. We recognize base management fees for the CLOs on a monthly basis over the period in which the collateral management services are performed. The base management fees for the CLOs are calculated as a percentage of the average aggregate collateral balances for a specified period. As we consolidate CLO I, CLO II, and CLO III, the management fees earned at JMP Credit Advisors LLC ("JMPCA") from the CLOs are eliminated on consolidation in accordance with accounting principles GAAP. At March 31, 2014, the contractual senior and subordinated base management fees earned from the CLOs were 0.50% of the average aggregate collateral balance for a specified period. - 32 - --------------------------------------------------------------------------------

Redemption provisions of our funds require at least 90 days' advance notice, except for one fund that requires twelve months advance notice. The following tables present certain information with respect to the investment funds managed by HCS, HCAP Advisors, and CLOs managed by JMPCA: Company's Share of (In thousands) Assets Under Management (1) at Assets Under Management at December March 31, 2014 December 31, 2013 March 31, 2014 31, 2013 Funds Managed by HCS or HCAP Advisors: Hedge Funds: Harvest Opportunity Partners II (2) $ 136,080 $ 123,481 $ 23,739 $ 15,847 Harvest Small Cap Partners 344,461 322,883 3,783 1,003 Harvest Franchise Fund 113,155 114,145 3,801 2,909 Harvest Agriculture Select (2) 103,897 90,589 20,880 14,578 Harvest Technology Partners (2) 46,872 42,661 14,309 10,311 Private Equity Funds: Harvest Growth Capital LLC (3) 33,791 35,130 1,590 1,649 Harvest Growth Capital LLC II (3) 72,296 73,552 1,611 1,748 Funds of Funds: JMP Masters Fund 53,856 50,686 153 139 REITs: New York Mortgage Trust 36,455 34,966 N/A N/A Loans: Harvest Capital Credit Corporation 81,712 72,361 N/A N/A HCS and HCAP Advisors Totals $ 1,022,575 $ 960,454 $ 69,866 $ 48,184 CLOs Managed by JMPCA: CLO I (3) 439,047 441,533 N/A N/A CLO II (3) 330,558 330,431 N/A N/A CLO III (3) 75,755 10,003 N/A N/A JMPCA Totals $ 845,360 $ 781,967 N/A N/A JMP Group Inc. Totals $ 1,867,935 $ 1,742,421 $ 69,866 $ 48,184



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(1) For hedge funds, private equity funds and funds of funds, assets under

management represent the net assets of such funds. For NYMT, assets under

management represent the portion of the net assets of NYMT that is subject

to the incentive fee calculation. For CLOs, assets under management

represent the sum of the aggregate collateral balance and restricted cash to

be reinvested in collateral, upon which management fees are earned. (2) Harvest Opportunity Partners II ("HOP II") and Harvest Agriculture Select

("HAS") include managed accounts in which the Company has neither equity

investment nor control. These are included as they follow the respective

funds' strategies and earn fees. (3) HGC, HGC II, HCAP Advisors, CLO I, CLO II and CLO III were consolidated in

the Company's Statements of Financial Condition at both March 31, 2014 and December 31, 2013. Funds Managed by HCS Private Hedge Funds Equity Funds Funds of Funds Total AUM at December 31, 2013 $ 693,759$ 108,682$ 50,686 853,127 Contributions 40,392 3,424 - 43,816 Redemptions (9,149 ) - - (9,149 ) Appreciation 19,465 (6,019 ) 3,170 16,616 AUM at March 31, 2014 $ 744,467$ 106,087$ 53,856 904,410 - 33 -

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Funds Managed by HCS Private Hedge Funds Equity Funds Funds of Funds Total AUM at December 31, 2012 $ 605,491$ 47,354$ 42,182 695,027 Contributions 71,675 8,163 - 79,838 Redemptions (30,584 ) - (500 ) (31,084 ) Distributions from realization event - (1,135 ) - (1,135 ) Appreciation 31,987 (1,031 ) 2,064 33,020 AUM at March 31, 2013 $ 678,569 53,351 43,746 775,666 AUM related to hedge funds, private equity funds and funds of funds increased $51.3 million, or 6.0%, from $853.1 million at December 31, 2013 to $904.4 million at March 31, 2014. This increase was primarily attributed to capital contributions of $40.4 million and appreciation of $19.5 million related to hedge funds managed by HCS, partially offset by redemptions of $9.1 million. AUM related to hedge funds, private equity funds and funds of funds increased $80.6 million, or 11.6%, from $695.0 million at December 31, 2012 to $775.7 million at March 31, 2013. This increase was primarily attributed to capital contributions of $71.7 million and appreciation of $32.0 million related to hedge funds managed by HCS, partially offset by $30.6 million of redemptions in these funds. (In thousands) Three Months Ended March 31, 2014 Three Months Ended March 31, 2013 Company's Company's Share of Change Share of Change in Fair Value Management Fee Incentive Fee in Fair Value Management Fee Incentive Fee Hedge Funds: Harvest Opportunity Partners II (1) $ 433 230 88 $ 386 $ 322 $ 213 Harvest Small Cap Partners 57 1,511 2,425 227 1,350 3,641 Harvest Franchise Fund 14 312 - 176 236 - Harvest Agriculture Select (1) 597 240 80 395 136 181 Harvest Technology Partners (1) 128 78 - (290 ) 183 - Harvest Diversified Partners - - - 368 42 55 Private Equity Funds: Harvest Growth Capital LLC (2) (63 ) 97 - - 106 30 Harvest Growth Capital II LLC (2) (240 ) 281 - (20 ) 274 - Funds of Funds: JMP Masters Fund 14 120 16 8 98 - REITs: New York Mortgage Trust - - 310 - - 300 Loans: Harvest Capital Credit LLC (2) N/A - - N/A 77 320 Harvest Capital Credit Corporation N/A 390 (360 ) N/A - - CLOs: CLO I (2) N/A 550 - N/A 583 - CLO II (2) N/A 410 - N/A - - CLO III (2) N/A 71 - N/A - - Totals $ 940 $ 4,291 $ 2,559 $ 1,250 $ 3,407 $ 4,740



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(1) HOP II, HAS and HTP include managed accounts in which the Company has

neither equity investment nor control. These are included with the funds, as

they follow the respective strategies and earn fees. (2) Revenues earned from HGC, HGC II, HCC LLC (through May 2, 2013), CLO I, CLO

II (effective April 30, 2013), CLO III (effective December 11, 2013) are

consolidated and then eliminated in consolidation in the Company's Statements of Operations, net of non-controlling interest. Principal Transactions Principal transaction revenues includes realized and unrealized net gains and losses resulting from our principal investments, which include investments in equity and other securities for our own account and as the general partner of funds managed by us, warrants we may receive from certain investment banking assignments, as well as limited partner investments in private funds managed by third parties. In addition, we invest a portion of our capital in a portfolio of equity securities managed by HCS and in side-by-side investments in the funds managed by us. In certain cases, we also co-invest alongside our institutional clients in private transactions resulting from our investment banking business. Principal transaction revenues also include unrealized gains and losses on the private equity securities owned by HGC and HGC II, two private equity funds managed by HCS which are consolidated in our financial statements, as well as unrealized gains and losses on the investments in private companies sponsored by HCS and JMP Capital LLC ("JMP Capital"), and unrealized gains and losses on the warrants, options and equity securities owned by HCC LLC (through May 2, 2013). - 34 -

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Gain on Sale, Payoff and Mark-to-market of Loans

Gain on sale, payoff and mark-to-market of loans consists of gains from the sale and payoff of loans collateralizing asset-backed securities at JMP Credit and small business loans at HCC LLC (through May 2, 2013). Gains are recorded when the proceeds exceed the carrying value of the loan. Gain on sale, payoff and mark-to-market of loans also consists of lower of cost or market adjustments arising from loans held for sale and fair value market adjustments of the small business loans. Losses are recorded for the loan held for sale when the carrying value exceeds fair value. Changes to the fair value of the small business loans were recorded to this line item, when HCC LLC was consolidated. Net Dividend Income



Net dividend income comprises dividends from our investments offset by dividend expense for paying short positions in our principal investment portfolio.

Other Income Other income includes revenues from equity method investments and revenues from fee-sharing arrangements with, and fees earned to raise capital for third-party investment partnerships, or funds. Interest Income Interest income primarily consists of interest income earned on loans collateralizing asset-backed securities issued, small business loans, and loans held for investment. Interest income on loans comprises the stated coupon as a percentage of the face amount receivable as well as accretion of accretable or purchase discounts and deferred fees. Interest income is recorded on the accrual basis in accordance with the terms of the respective loans unless such loans are placed on non-accrual status. Interest Expense Interest expense primarily consists of interest expense incurred on asset-backed securities issued and note payable, and the amortization of bond issuance costs. Interest expense on asset-backed securities is the stated coupon payable as a percentage of the principal amount as well as amortization of the liquidity discount which was recorded at the acquisition date of CLO I. Interest expense is recorded on the accrual basis in accordance with the terms of the respective asset-backed securities issued and note payable. Provision for Loan Losses Provision for loan losses includes provision for losses recognized on our loan notes and non-revolving credit agreements at JMP Capital (collectively loans held for investment), and on loans collateralizing asset-backed securities ("ABS") at JMP Credit to record them at their estimated net realizable value. A provision for loan losses is charged to expense to establish the allowance for loan losses. The allowance for loan losses is maintained at a level, in the opinion of management, sufficient to offset estimated losses inherent in the loan portfolio as of the date of the financial statements. The appropriateness of the allowance and the allowance components are reviewed quarterly. The Company's estimate of each allowance component is based on observable information and on market and third-party data that we believe are reflective of the underlying loan losses being estimated. A specific reserve is provided for loans that are considered impaired. A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral securing the loan if the loan is collateral dependent, depending on the circumstances and our collection strategy. For those loans held by CLO I at the date of acquisition by JMP Credit, and deemed impaired at that date or a subsequent date, allowance for loan losses is calculated considering two additional factors. For loans deemed impaired at the date of acquisition, if there is a further decline in expected future cash flows, this reduction is recognized as a specific reserve in accordance with the guidance above. For those loans deemed impaired subsequent to the acquisition date, if the net realizable value is lower than the current carrying value then the carrying value is reduced and the difference is booked as provision for loan losses. If the total discount from unpaid principal balance to carrying value is larger than the expected loss at the date of assessment, no provision for loan losses is recognized. In addition, we provide an allowance on a loan-by-loan basis at JMP Credit for loans that were purchased after the CLO I acquisition. We employ internally developed and third-party estimation tools for measuring credit risk (loan ratings, probability of default, and exposure at default), which are used in developing an appropriate allowance for loan losses. We perform periodic detailed reviews of its loan portfolio to identify risks and to assess the overall collectability of loans.



Loans which are deemed to be uncollectible are charged off and the charged-off amount is deducted from the allowance.

Components of Expenses We classify our expenses as compensation and benefits, administration, brokerage, clearing and exchange fees, travel and business development, communications and technology, professional fees, impairment loss on purchased management contract and other expenses. A significant portion of our expense base is variable, including compensation and benefits, brokerage clearing and exchange fees, travel and business development and communication and technology expenses. - 35 -

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Compensation and Benefits Compensation and benefits is the largest component of our expenses and includes employees' base pay, performance bonuses, sales commissions, related payroll taxes, medical and benefits expenses, as well as expenses for contractors, temporary employees and equity-based compensation. Our employees receive a substantial portion of their compensation in the form of individual performance-based bonuses. As is the widespread practice in our industry, we pay bonuses on an annual basis, which for senior professionals typically make up a large portion of their total compensation. Bonus payments may have a greater impact on our cash position and liquidity in the periods in which they are paid than would otherwise be reflected in our Consolidated Statements of Operations. We accrue for the estimated amount of these bonus payments ratably over the applicable service period. Compensation is accrued using specific ratios of total compensation and benefits to total revenues based on revenue categories, as adjusted if, in management's opinion, such adjustments are necessary and appropriate to maintain competitive compensation levels. Administration



Administration expense primarily includes the cost of hosted conferences, non-capitalized systems and software expenditures, insurance, business tax (non-income), office supplies, recruiting, and regulatory fees.

Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees include the cost of floor and electronic brokerage and execution, securities clearance, and exchange fees. We clear our securities transactions through J.P. Morgan Clearing Corp. Changes in brokerage, clearing and exchange fees fluctuate largely in line with the volume of sales and trading activity.



Travel and Business Development

Travel and business development expense is net of expenses reimbursed by clients.

Communications and Technology

Communications and technology expense primarily relates to communication and information processing as well as the subscription of certain market data.

Professional Fees



Professional fees primarily relate to legal and accounting professional services.

Other Expenses



Other operating expenses primarily include occupancy, depreciation and CLO administration expense at JMP Credit.

Non-controlling Interest

Non-controlling interest for the three months ended March 31, 2013 includes the interest of third parties in CLO I, HGC, HGC II, and HCC LLC, partially-owned subsidiaries consolidated in our financial statements. Non-controlling interest for the three months ended March 31, 2014 also includes the interest of third parties in CLO II and HCAP Advisors, partially-owned subsidiaries consolidated in our financial statements. HCS currently manages several asset management funds, which are structured as limited partnerships, and is the general partner of each. The Company assesses whether the partnerships meet the definition of a variable interest entities ("VIEs") in accordance with ASC 810-10-15-14, and whether the Company qualifies as the primary beneficiary. Funds determined not to meet the definition of a VIE are considered voting interest entities for which the rights of the limited partners are evaluated to determine if consolidation is necessary. Such guidance provides that the presumption that the general partner controls the limited partnership may be overcome if the limited partners have substantive kick-out rights. Except for HGC and HGC II, the partnership agreements for these funds provide for the right of the limited partners to remove the general partners by a simple majority vote of the non-affiliated limited partners. Because of these substantive kick-out rights, the Company, as the general partner, does not control these funds, and therefore does not consolidate them except for HGC and HGC II. The Company accounts for its investments in these non-consolidated funds under the equity method of accounting. The limited liability company agreements of HGC and HGC II do not provide for the right of the members to remove the manager by a simple majority vote of the non-affiliated members and therefore the manager (with a minority interest in the limited liability company) is deemed to control the funds. As a result, we consolidated HGC from its inception on April 1, 2010 and HGC II from its inception on October 1, 2012. On August 6, 2010, the Company transferred 109 subordinated notes of CLO I to certain employees in exchange for their interests in JMP Credit. As a result of the aforementioned transfer, we own approximately 94% of the subordinated notes of CLO I. On April 30, 2013, entities sponsored by JMP Group Inc. closed on a $343.8 million CLO. The senior notes offered in this transaction (the "Secured Notes") were issued by CLO II, a special purpose Cayman vehicle, and co-issued in part by JMP Credit Advisors CLO II LLC, a special purpose Delaware vehicle, and were backed by a diversified portfolio of broadly syndicated leveraged loans. The Company, through a wholly-owned subsidiary, manages CLO II and from issuance through December 31, 2013 owned $17.3 million, or 72.8%, of the subordinated notes of the Issuer (the "Subordinated Notes"). In the first quarter of 2014, the Company repurchased $6.0 million of the subordinated notes, increasing its ownership to 98.0%. - 36 -

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HCC LLC launched on August 18, 2011 to make direct investments in the form of subordinated debt and, to a lesser extent, senior debt and minority equity investments, in privately-held U.S. small to mid-size companies. The Company and affiliates owned approximately 59% of HCC LLC at December 31, 2012. The Company consolidated HCC LLC into its consolidated financial statements. In 2013, the outstanding limited liability company units of HCC LLC were converted into a number of shares of HCC common stock. On May 2, 2013, HCC priced its initial pubic offering, which reduced the Company's ownership of HCC to 11.6%. At such date, the Company no longer consolidated HCC. HCAP Advisors was formed on December 18, 2012. HCAP Advisors appointed JMP Group LLC as its Manager effective May 1, 2013, and began offering investment advisory services. The Company owns 51% equity interest in the entity. - 37 - --------------------------------------------------------------------------------

Results of Operations The following table sets forth our results of operations for the three months ended March 31, 2014 and 2013 and is not necessarily indicative of the results to be expected for any future period. Change from (In thousands) Three Months Ended March 31, 2013 to 2014 2014 2013 $ % Revenues Investment banking $ 25,053$ 12,107$ 12,946 106.9 % Brokerage 6,656 5,194 1,462 28.1 % Asset management fees 5,544 6,751 (1,207 ) -17.9 % Principal transactions (3,693 ) 1,917 (5,610 ) N/A Gain on sale, payoff and mark-to-market of loans 380 1,089 (709 ) -65.1 % Net dividend income 235 (8 ) 243 N/A Other income 222 288 (66 ) -22.9 % Non-interest revenues 34,397 27,338 7,059 25.8 % Interest income 8,588 8,158 430 5.3 % Interest expense (4,828 ) (11,299 ) 6,471 -57.3 % Net interest (expense) income 3,760 (3,141 ) 6,901 219.7 % Provision for loan losses (497 ) (949 ) 452 -47.6 % Total net revenues after provision for loan losses 37,660 23,248 14,412 62.0 % Non-interest expenses Compensation and benefits 31,376 19,605 11,771 60.0 % Administration 1,722 1,331 391 29.4 % Brokerage, clearing and exchange fees 925 887 38 4.3 % Travel and business development 851 958 (107 ) -11.2 % Communication and technology 948 853 95 11.1 % Professional fees 807 1,024 (217 ) -21.2 % Other 1,264 1,113 151 13.6 % Total non-interest expenses 37,893 25,771 12,122 47.0 % Loss before income tax expense (233 ) (2,523 ) 2,290 90.8 % Income tax expense (benefit) 1,696 (812 ) 2,508 N/A Net loss (1,929 ) (1,711 ) (218 ) 12.7 % Less: Net (loss) income attributable to non-controlling interest (5,927 ) 8 (5,935 ) N/A Net income (loss) attributable to JMP Group Inc. $ 3,998$ (1,719 )$ 5,717 332.6 % - 38 -

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Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Overview Total net revenues after provision for loan losses increased $14.4 million, or 62.0%, from $23.2 million for the quarter ended March 31, 2013 to $37.7 million for the quarter ended March 31, 2014, driven by increases in non-interest revenues of $7.1 million and net interest income of $6.9 million. Non-interest revenues increased $7.1 million, or 25.8%, from $27.3 million for the quarter ended March 31, 2013 to $34.4 million in the same period in 2013. This increase was primarily driven by a $12.9 million increase in investment banking revenues, partially offset by a $5.6 million decline in principal transactions revenues. Net interest income increased $6.9 million, or 219.7%, from $3.1 million net interest expense for the quarter ended March 31, 2013 to $3.8 million net interest income for the same period in 2014. This increase in net interest income is primarily attributed to an increase in net interest earned at JMP Credit, partially offset by $1.0 million interest expense related to the bond issued in January 2014. Provision for loan losses decreased $0.4 million from $0.9 million for the quarter ended March 31, 2013 to $0.5 million for the quarter ended March 31, 2014. The decrease was driven by a specific reserve from one non-accrual loan held at JMP Credit recorded in the quarter ended March 31, 2013, partially offset by general reserves recorded in connection with the loan portfolio underlying CLO III which closed in the fourth quarter of 2013. Total non-interest expenses increased $12.1 million, or 47.0%, from $25.8 million for the quarter ended March 31, 2013 to $37.9 million for the quarter ended March 31, 2014, primarily due to an increase in compensation and benefits of $11.8 million. Net income attributable to JMP Group Inc. increased $5.7 million, or 332.6%, from a $1.7 million loss after income tax benefit of $0.8 million for the quarter ended March 31, 2013 to $4.0 million net income after income tax expense of $1.7 million for the quarter ended March 31, 2014.



Operating Net Income (Non-GAAP Financial Measure)

Management uses Operating Net Income as a key, non-GAAP metric when evaluating the performance of JMP Group's core business strategy and ongoing operations, as management believes that this metric appropriately illustrates the operating results of JMP Group's core operations and business activities. Operating Net Income is derived from our segment reported results and is the measure of segment profitability on an after-tax basis used by management to evaluate our performance. This non-GAAP measure is presented to enhance investors' overall understanding of our current financial performance. Additionally, management believes that Operating Net Income is a useful measure because it allows for a better evaluation of the performance of JMP Group's ongoing business and facilitates a meaningful comparison of the company's results in a given period to those in prior and future periods. However, Operating Net Income should not be considered a substitute for results that are presented in a manner consistent with GAAP. A limitation of the non-GAAP financial measures presented is that, unless otherwise indicated, the adjustments concern gains, losses or expenses that JMP Group generally expects to continue to recognize, and the adjustment of these items should not always be construed as an inference that these gains or expenses are unusual, infrequent or non-recurring. Therefore, management believes that both JMP Group's GAAP measures of its financial performance and the respective non-GAAP measures should be considered together. Operating Net Income may not be comparable to a similarly titled measure presented by other companies.



Operating Net Income is a non-GAAP financial measure that adjusts the Company's GAAP net income as follows:

(i) reverses non-cash stock-based compensation expense recognized under GAAP

related to historical equity awards granted in prior periods, as management

generally evaluates performance by considering the full expense of equity

awards granted in the period in which such compensation was awarded, even if

the expense of that award will be recognized in future periods under GAAP;

(ii) recognizes 100% of the cost of deferred compensation, including non-cash

stock-based compensation expense, in the period for which such compensation

was awarded, instead of recognizing such cost over the vesting period as

required under GAAP, in order to match compensation expense with the actual

period upon which the compensation was based;



(iii) excludes the non-cash net amortization of liquidity discounts on loans

held and asset-backed securities issued by JMP Credit Corporation, due to

scheduled contractual principal repayments, which is not representative of

the Company's core operating results or core business activities, for periods prior to that ended September 30, 2013;



(iv) reverses net non-cash unrealized gains and losses on strategic equity

investments and warrants; - 39 -

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(v) excludes non-cash unrealized mark-to-market gains or losses on the



investment portfolio at HCC, due to its adoption of investment company

accounting in preparation for its pending initial public offering as a business development company;



(vi) presents revenues and expenses on a basis that deconsolidates HGC, HGC II

and HCC LLC. HGC and HGC II are investment funds that HCS manages; we own a

relatively small percentage of these funds, even though they are consolidated under GAAP; (vii) excludes general loan loss reserves on the CLOs; and



(viii) assumes a combined federal, state and local income tax rate of 38% for

the quarters ended March 31, 2014 and 2013.



Discussed below is our Operating Net Income by segment. This information is reflected in a manner utilized by management to assess the financial operations of the Company's various business lines.

Three Months Ended March 31, 2014 Corporate Operating Investment (In thousands) Broker-Dealer Asset Management Credit Platforms Income Corporate Costs Elimin-ations Total Segments Revenues Investment banking $ 25,143 $ - $ - $ 25,143 $ - $ - $ (90 ) $ 25,053 Brokerage 6,656 - - 6,656 - - - 6,656 Asset management related fees 50 6,224 1,061 7,335 - - (1,190 ) 6,145 Principal transactions - - - - 1,760 - - 1,760 Gain on sale, payoff and mark-to-market of loans - - - - 380 - - 380 Net dividend income - - - - 235 - - 235 Net interest income - - - - 3,777 - - 3,777 Provision for loan losses - - - - 53 - - 53 Adjusted net revenues 31,849 6,224 1,061 39,134 6,205 - (1,280 ) 44,059 Non-interest expenses Non-interest expenses 25,335 6,432 1,024 32,791 1,360 4,239 (1,190 ) 37,200 Less: Non-controlling interest - (356 ) - (356) 150 - - (206) Operating pre-tax net income 6,514 148 37 6,699 4,695 (4,239 ) (90 ) 7,065 Income tax expense (assumed rate of 38%) 2,475 56 14 2,545 1,785 (1,611 ) (34 ) 2,685 Operating net income (loss) $ 4,039 $ 92 $ 23 $ 4,154$ 2,910 $ (2,628 ) $ (56 ) $ 4,380 - 40 -

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Three Months Ended March 31, 2013 Operating Investment (In thousands) Broker-Dealer Asset Management Corporate Credit Platforms Income Corporate Costs Elimin-ations Total Segments Revenues Investment banking $ 12,178 $ - $ - $ 12,178 $ - $ - $ (70 ) $ 12,108 Brokerage 5,194 - - 5,194 - - - 5,194 Asset management related fees - 8,159 884 9,043 - - (1,146 ) 7,897 Principal transactions - - - - 2,224 - 6 2,230 Gain on sale, payoff and mark-to-market of loans - - - - 999 - - 999 Net dividend income - - - - 249 - - 249 Net interest income - - - - 4,289 - - 4,289 Provision for loan losses - - - - (950 ) - - (950) Adjusted net revenues 17,372 8,159 884 26,415 6,811 - (1,210 ) 32,016 Non-interest expenses Non-interest expenses 15,737 7,539 727 24,003 (846 ) 3,989 (1,139 ) 26,007 Less: Non-controlling interest - - - - 176 - - 176 Operating pre-tax net income 1,635 620 157 2,412 7,481 (3,989 ) (71 ) 5,833 Income tax expense (assumed rate of 38%) 621 236 60 917 2,842 (1,516 ) (27 ) 2,216 Operating net income (loss) $ 1,014 $ 384 $

97 $ 1,495$ 4,639 $ (2,473 ) $ (44 ) $ 3,617



The following table reconciles the operating net income to Total Segments operating pre-tax net income, to consolidated pre-tax net income (loss) attributable to JMP Group, and to consolidated net income (loss) attributable to JMP Group, for the three months ended March 31, 2013 and 2014.

(In thousands) Three Months Ended March 31, 2014 2013 Operating net income $ 4,380 $ 3,617 Addback of Income tax expense (assumed rate of 38%) 2,685 2,216 Total Segments operating pre-tax net income $ 7,065 $ 5,833 Subtract / (Add back) Stock options 395 137 Compensation expense - RSUs 853 616 Deferred compensation program accounting adjustment (596 )



(1,124 ) Net unrealized loss on strategic equity investments and warrants.

174 157 General loan loss reserve for the CLOs 545 -



Net amortization of liquidity discounts on loans and asset-backed securities issued

- 8,740 Unrealized mark-to-market gain - HCC - (162 ) Consolidated pre-tax net income (loss) attributable to JMP Group Inc. $ 5,694$ (2,531 ) Income tax expense (benefit) 1,696 (812 ) Consolidated Net Income (Loss) attributable to JMP Group Inc. $ 3,998$ (1,719 ) When evaluating the performance of JMP Group's core business strategy and ongoing operations, management also reviewed the Adjusted Operating Net Income through December 31, 2013, which excluded the non-cash gains and losses recognized by JMP Credit Corp due to the sale or payoff of loans originally included in the portfolio acquired by JMP Group in April 2009, as well as the provision for loan losses related to this portfolio of loans. Adjustments derived from sales or payoffs of acquired loans, while once substantial, are no longer material, as the portfolio of acquired loans is almost entirely liquidated. Therefore, the analysis below is based on operating net income. The adjusted operating net income, after a 38% tax rate, was $3.9 million for the three months ended March 31, 2013. The reconciling items for the quarter ended March 31, 2013 from adjusted operating net income to operating net income include adding back $0.2 million non-cash gains on the acquired loan portfolio, subtracting the specific reserve on the loan from the portfolio of $0.9 million, adding back the related compensation expense of $0.3 million, and adding back the related tax expense of $0.1 million for the three months ended March 31, 2013. - 41 -

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Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Revenues Investment Banking Investment banking revenues increased $13.0 million, or 106.9%, from $12.1 million for the quarter ended March 31, 2013 to $25.1 million for the same period in 2014. As a percentage of total net revenues after provision for loan losses, investment banking revenues increased from 52.1% for the quarter ended March 31, 2013 to 66.5% for the quarter ended March 31, 2014. Our segment reported investment banking revenues, earned in our Broker-Dealer segment, increased $13.0 million from $12.1 million for the quarter ended March 31, 2013 to $25.1 million for the same period in 2014. Public equity underwriting revenues increased $10.6 million, or 119.0%, from $8.9 million for the quarter ended March 31, 2013 to $19.5 million for the quarter ended March 31, 2014. We executed 33 public equity underwriting transactions in both quarters ended March 31, 2013 and March 31, 2014. We acted as a lead manager on 10 transactions in the quarter ended March 31, 2014 compared to seven in the same period in 2013. The increase was attributed to our role as a lead in more transactions, in addition to an increase in average revenues per transaction. Our strategic advisory revenues increased $1.9 million, or 133.1%, from $1.4 million for the quarter ended March 31, 2013 to $3.3 million for the quarter ended March 31, 2014. We executed three strategic advisory transactions in the quarter ended March 31, 2014 compared to one in the quarter ended March 31, 2013. Private capital markets and other transaction revenues increased $0.6 million, or 380.8%, from $0.1 million for the quarter ended March 31, 2013 to $0.7 million for the same period in 2014. We executed one transaction related to private capital markets and other transactions in the quarter ended March 31, 2014 compared to zero in the same period in 2013. Our debt and convertible revenues were $1.6 million for both the quarters ended March 31, 2013 and 2014. While we executed six debt and convertible transactions in the quarter ended March 31, 2014 compared to ten in the same period in 2013, the average debt and convertible revenues per deal increased 58.9% from $164.8 million to $261.8 million. Brokerage Revenues Brokerage revenues earned in our Broker-Dealer segment increased $1.5 million, or 28.1%, from $5.2 million for the quarter ended March 31, 2013 to $6.7 million for the quarter ended March 31, 2014. The increase was mainly the result of increased volume. Brokerage revenues decreased as a percentage of total net revenues after provision for loan losses, from 22.3% for the quarter ended March 31, 2013 to 17.7% for the quarter ended March 31, 2014. On an adjusted basis, brokerage revenues were 16.2% and 15.1% for the quarters ended March 31, 2013 and 2014, respectively, as a percentage of adjusted net revenue after provision for loan losses. Asset Management Fees (In thousands) Three Months Ended March 31, 2014 2013 Base management fees: Fees reported as asset management fees $ 2,984 $ 2,365 Fees earned at HGC, HGC II and HCC LLC 379 508 Total base management fees 3,363 2,873 Incentive fees: Fees reported as asset management fees $ 2,560 $ 4,386 Fees earned at HGC, HGC II and HCC LLC - 350 Total incentive fees 2,560 4,736 Other fee income: Fundraising and other income: $ 222 $ 288 Total other fee income 222 288 Asset management related fees: Fees reported as asset management fees $ 5,544 $ 6,751 Fees reported as other income 222 288 Fees earned at HGC, HGC II and HCC LLC 379 858 Total Segment asset management related fee revenues $ 6,145 $ 7,897 Consolidation adjustment (379 ) (858 )



Adjusted total asset management related fees: $ 5,766 $ 7,039

Fees reported as asset management fees were $6.8 million and $5.5 million for the quarters ended March 31, 2013 and 2014, respectively. As a percentage of total net revenues after provision for loan losses, asset management revenues decreased from 29.0% for the quarter ended March 31, 2013 to 14.7% for the quarter ended March 31, 2014. Fees reported as other income decreased $0.1 million, or 22.9% from $0.3 million for the quarter ended March 31, 2013 to $0.2 million for the quarter ended March 31, 2014. As a percentage of total net revenues after provision for loan losses, other income decreased from 1.2% for the quarter ended March 31, 2013 to 0.6% for the same period in 2014. - 42 -

-------------------------------------------------------------------------------- Total segment asset management related fees include base management fees and incentive fees for our funds, HCC and CLOs under management, as well as other income from fee-sharing arrangements with, and fees earned to raise capital for, third-party or equity-method investment partnerships or funds. Adjusted asset management related fees are a non-GAAP financial measure that adjusts our total segment asset management related fees by reversing the elimination of those fees in the consolidation of HGC, HGC II, HCC LLC (through May 2, 2013) and HCAP Advisors (effective May 1, 2013). Adjusted asset management related fees are reconciled to the GAAP measure, total segment asset management fee revenues, in the table above. We believe that presenting adjusted asset management related fees is useful to investors as a means of assessing the performance of JMP Group's combined asset management activities, including its fundraising and other services for third parties. We believe that adjusted asset management-related fee revenues provide useful information by indicating the relative contributions of base management fees and performance-related incentive fees, thus facilitating a comparison of those fees in a given period to those in prior and future periods. We also believe that asset management-related fee revenue is a more meaningful measure than standalone asset management fees as reported, because asset management-related fee revenues represent the combined impact of JMP Group's various asset management activities on the Company's total net revenues. Total segment asset management related fee revenue decreased $1.8 million from $7.9 million for the quarter ended March 31, 2013 to $6.1 million for the quarter ended March 31, 2014. The decrease was attributed to declines in incentive fees, partially offset by an increase in base management fees. Total incentive fees decreased $2.1 million from $4.7 million for the quarter ended March 31, 2013 to $2.6 million for the same period in 2014. The decrease in incentive fees was driven by a decrease of $1.2 million related to HSCP, in addition to a decline of $0.6 million earned at HCC LLC and HCAP Advisors from $0.3 million earned in March 31, 2013 to a $0.3 million reversal in the same period in 2014. Total base management fee increased $0.5 million from $3.1 million for the quarter ended March 31, 2013 to $3.6 million for the same period in 2014. The increase was driven by increases of $0.4 million in management fees from HCAP Advisors, which was created subsequent to the first quarter of 2013. On an adjusted basis, adjusted asset management related fees were 24.7% and 13.9% for the quarters ended March 31, 2013 and 2014, respectively, as a percentage of adjusted net revenues after provision for loan losses. Principal Transactions Principal transaction revenues decreased $5.6 million from $1.9 million for the quarter ended March 31, 2013 to a $3.7 million loss for the same period in 2014. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were 8.3% for the quarter ended March 31, 2013 and negative 9.8% for the quarter ended March 31, 2014. Total segment principal transaction revenues decreased $0.4 million from $2.2 million for the quarter ended March 31, 2013 to $1.8 million for the same period in 2014. Total segment principal transaction revenues are a non-GAAP financial measure that aggregates our segment reported principal transaction revenues across each segment. We believe that presenting total segment principal transaction revenues is useful to investors as a means of assessing the performance of JMP Group's combined investment activities. The principal transaction revenues for both 2013 and 2014 were based in our Investment Income segment. Total segment principal transaction revenues are reconciled to the GAAP measure, total principal transaction revenues, in the table below. Three Months Ended March 31, (In thousands) 2014 2013 Equity and other securities excluding non-controlling interest $ 843 $



640

Warrants and other investments (25 )



350

Investment partnerships 942



1,240

Total Segment principal transaction revenues 1,760



2,230

Operating adjustment addbacks (174 )



268

Non-controlling interest in HGC, HGC II and HCC LLC (through May 2, 2013) (5,279 ) (581 ) Total principal transaction revenues $ (3,693 ) $ 1,917 The decrease primarily reflects reduced revenue from investment partnerships and warrants and other investments, partially offset by increases in equity and other securities. Revenues from investment partnerships decreased $0.3 million from $1.2 million for the quarter ended March 31, 2013 to $0.9 million for the quarter ended March 31, 2014. Revenues from warrants and other investments decreased by $0.4 million from $0.4 million for the quarter ended March 31, 2013 to a loss of $25 thousand for the quarter ended March 31, 2014. On an adjusted basis, as a percentage of total net revenues after provision for loan losses, principal transaction revenues decreased from 7.0% for the quarter ended March 31, 2013 to 4.2% for the quarter ended March 31, 2014. Revenues from equity and other securities increased $0.2 million from $0.6 million for the quarter ended March 31, 2013 to $0.8 million for the same period in 2014, driven primarily by a $0.1 million increase in unrealized gains in our principal investment portfolio.



Gain on Sale and Payoff of Loans

Gain on sale, payoff and mark-to-market of loans decreased $0.7 million, from $1.1 million for the quarter ended March 31, 2013 to $0.4 million for the quarter ended March 31, 2014, respectively. At JMP Credit, during the quarter ended March 31, 2014, 42 loans were sold, paid off or were terminated, resulting in a total net gain of $0.4 million. Of the total net gain, $0.3 million related to two terminated commitments. $0.1 million was related to 28 loan payoffs, where the borrowers repaid the loans at a premium to our carrying value. These gains were partially offset by a $69 thousand loss related to 12 loans, six of which were sold at a discount to our carrying value. While we expect further gains from loan payoffs in future periods, these revenues are highly unpredictable as we are not actively marketing the loans collateralized by asset-backed securities for sale. As a percentage of total net revenues after provision for loan losses, gain on sale, payoff and mark-to-market of loans decreased from 4.7% for the quarter ended March 31, 2013 to 1.0% for the quarter ended March 31, 2014. Gain on sale, payoff and mark-to-market of loans was earned in our Corporate Credit segment. On a segment reporting basis, the gain on sale, payoff and mark-to-market of loans also excludes unrealized mark-to-market gains or losses on the investment portfolio at HCC LLC (through May 2, 2013). Our segment reported gain on sale, payoff and mark-to-market of loans in the Corporate Credit segment decreased $0.6 million, from $1.0 million for the quarter ended March 31, 2013 to $0.4 million for the quarter ended March 31, 2014. Gain on sale, payoff and mark-to-market of loans decreased from 3.1% for the quarter ended March 31, 2013 to 0.9% for the quarter ended March 31, 2014 as a percentage of total segment adjusted net revenues. - 43 - --------------------------------------------------------------------------------

Net Dividend Income/Loss Net dividend income was $0.2 million for the quarter ended March 31, 2014 and a loss of $8 thousand for the quarter ended March 31, 2013. For the quarter ended March 31, 2014, net dividend income primarily related to dividends from our HCC investment. Net Interest Income/Expense (In thousands) Three Months Ended March 31, 2014 2013 CLO I loan contractual interest income $ 4,012 $



4,940

CLO I ABS issued contractual interest expense (1,016 ) (1,121 ) Net CLO I contractual interest 2,996



3,819

CLO II loan contractual interest income $ 3,715 $

-

CLO I fee amortization CLO II ABS issued contractual interest expense (1,680 )



-

Net CLO II contractual interest 2,035 - Bond Payable interest expense (1,585 ) (629 ) Other interest income 331 1,099 Total Segment net interest income $ 3,777 $



4,289

CLO I loan liquidity discount accretion -



504

CLO I ABS liquidity discount amortization - (9,243 ) Net CLO I liquidity discount amortization - (8,739 ) HCC LLC interest income - 1,786 HCC LLC interest expense - (477 ) Net HCC LLC interest income - 1,309 Other interest income adjustment (17 )



-

Total net interest income (expense) $ 3,760$ (3,141 ) Net interest income increased $6.9 million, or 219.7% from $3.1 million net interest expense for the quarter ended March 31, 2013 to $3.8 million net interest income for the quarter ended March 31, 2014. The net interest income increase was driven primarily by the CLO I liquidity discount amortization included in the quarter ended March 31, 2013 and the CLO II interest earned in the quarter ended March 31, 2014. CLO II launched subsequent to the first quarter of 2013. These increases in net interest income were partially offset by additional bond interest expense from the 2014 bond issuance, and the reduced interest income from HCC LLC due to its deconsolidation in the second quarter of 2013. As a percentage of total net revenues after provision for loan losses, net interest income was 13.5% for the quarter ended March 31, 2013 and 10.0% for the quarter ended March 31, 2014. Total segment net interest income decreased from $4.3 million for the quarter ended March 31, 2013 to $3.8 million for the quarter ended March 31, 2014. Our total segment net interest income excludes net amortization of liquidity discounts on loans and asset-backed securities issued and interest earned at HCC LLC (through May 2, 2013). Net interest income is earned in our Investment Income segment, and largely reflects net CLO I and CLO II contractual interest. Total segment net interest income is a non-GAAP financial measure that aggregates our segment reported net interest income (expense) across each segment. We believe that presenting total segment net interest income is useful to investors as a means of assessing the performance of JMP Group's combined credit activities. Total segment net interest income is reconciled to the GAAP measure, total net interest expense, in the table above. As a percentage of total segment adjusted net revenues, net interest income decreased from 13.4% for the quarter ended March 31, 2013 to 8.6% for the quarter ended March 31, 2014. - 44 -

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The following table sets forth contractual interest income and expense related to CLO loans and ABS issued and their weighted average contractual interest rates: (In thousands) Three Months Ended March 31, 2014 Average CLO Weighted Interest Loan (CLO ABS Average Spread to Income Issued) Contractual Weighted Weighted (Expense) Balance Interest Rate Average LIBOR Average LIBOR CLO I loan contractual interest income $ 4,012$ 405,259 3.96 % 0.24 % 3.72 % CLO I ABS issued contractual interest expense (1,016 ) (416,783 ) 1.10 % 0.24 % 0.86 % CLO II loan contractual interest income 3,715 325,862 4.56 % 0.24 % 4.32 % CLO II ABS issued contractual interest expense (1,680 ) (319,679 ) 2.10 % 0.24 % 1.86 % Net CLO contractual interest $ 5,031 $ N/A N/A N/A N/A (In thousands) Three Months Ended March 31, 2013 Average CLO Weighted Interest Loan (CLO ABS Average Spread to Income Issued) Contractual Weighted Weighted (Expense) Balance Interest Rate Average LIBOR Average LIBOR CLO I loan contractual interest income $ 4,940$ 416,494 4.75 % 0.30 % 4.45 % CLO I ABS issued contractual interest expense (1,121 ) (431,003 ) 1.04 % 0.30 % 0.74 % Net CLO contractual interest $ 3,819 $ N/A N/A N/A N/A Contractual interest of $4.0 million was earned on the performing loans held by our CLO I for the quarter ended March 31, 2014. The annualized weighted average contractual interest rate on the performing loans was 3.96% with a spread to weighted average LIBOR of 3.72% for the quarter ended March 31, 2014. Interest expense related to CLO I ABS issued was $1.0 million for the quarter ended March 31, 2013. The annualized weighted average contractual interest rate on the CLO I ABS issued during the quarter was 1.10% with a spread to weighted average LIBOR of 0.86%. Contractual interest of $3.7 million was earned on the performing loans held by our CLO II for the quarter ended March 31, 2014. The annualized weighted average contractual interest rate on the performing loans was 4.56% with a spread to weighted average LIBOR of 4.32% for the quarter ended March 31, 2014. Interest expense related to CLO II ABS issued was $1.7 million for the quarter ended March 31, 2014. The annualized weighted average contractual interest rate on the CLO II ABS issued during the quarter was 2.10% with a spread to weighted average LIBOR of 1.86%. Contractual interest of $4.9 million was earned on the performing loans held by our CLO I for the quarter ended March 31, 2013. The annualized weighted average contractual interest rate on the performing loans was 4.75% with a spread to weighted average LIBOR of 4.45% for the quarter ended March 31, 2013. Interest expense related to ABS issued was $1.1 million for the quarter ended March 31, 2013. The annualized weighted average contractual interest rate on the ABS issued during the quarter was 1.04% with a spread to weighted average LIBOR of 0.74%. Provision for Loan Losses Provision for loan losses decreased $0.4 million, or 47.6%, from $0.9 million for the quarter ended March 31, 2013 to $0.5 million for the same period in 2014. As a percent of net revenues after provision for loan losses, provision for loan losses were 4.1% for the quarter ended March 31, 2013 and 1.3% for the quarter ended March 31, 2014. Total segment provision for loan losses decreased from $0.9 million for the quarter ended March 31, 2013 to a $0.1 million reversal for the quarter ended March 31, 2014. Total segment provision for loan losses is a non-GAAP financial measure that aggregates our segment reported provision for loan losses across each segment. Our total segment provision for loan losses in 2014 and 2013 was solely recognized in our Investment Income segment. As a percent of total segment adjusted net revenues, segment provision for loan losses were 3.0% and 0.1% for the quarters ended March 31, 2013 and 2014, respectively. Expenses Non-Interest Expenses Compensation and Benefits Compensation and benefits, which includes employee payroll, taxes and benefits, performance-based cash bonus and commissions, as well as equity-based compensation to our employees and managing directors, increased $11.8 million, or 60.0%, from $19.6 million for the quarter ended March 31, 2013 to $31.4 million for the quarter ended March 31, 2014.



Employee payroll, taxes and benefits, and consultant fees were $9.6 million for both the quarters ended March 31, 2013 and 2014.

Performance-based bonus and commission increased $10.8 million, or 120.0%, from $9.0 million for the quarter ended March 31, 2013 to $19.8 million for the quarter ended March 31, 2014. The increase was primarily due to the increase in total net revenues after provision for loan losses from $23.2 million for the quarter ended March 31, 2013 to $37.7 million for the same period in 2014. Equity-based compensation was $0.8 million and $1.6 million for the quarters ended March 31, 2013 and 2014, respectively. The increase is partially due to $0.7 million of performance RSU expense in the three months ended March 31, 2014, related to performance RSUs granted in 2014. - 45 - --------------------------------------------------------------------------------

Compensation and benefits as a percentage of revenues decreased from 84.3% of total net revenues after provision for loan losses for the quarter ended March 31, 2013 to 83.3% for the same period in 2014. Approximately $5.3 million of the unrealized loss at HGC, HGC II for the quarter ended March 31, 2014 and $0.3 million of the unrealized loss at HGC, HGC II and HCC for the quarter ended March 31, 2013 was attributable to non-controlling interest holders and therefore, did not have associated performance-based bonus expense, resulting in the higher percentages for these quarters. Our segment reported compensation and benefits, which includes 100% of deferred compensation expense and excludes RSU expense, increased $10.7 from $20.0 for the quarter ended March 31, 2013 to $30.7 million for the quarter ended March 31, 2014. As a percent of total segment net revenues, compensation and benefits were 62.4% and 69.7% for the quarters ended March 31, 2013 and 2014, respectively. Administration Administration expense increased $0.4 million, from $1.3 million for the quarter ended March 31, 2013 to $1.7 million for the quarter ended March 3, 2014. The increase was attributed to a conference held in the first quarter of 2014 that was not held in the first quarter in 2013. As a percentage of total net revenues after provision for loan losses, administration expense decreased from 5.7% for the quarter ended March 31, 2013 to 4.6% for the same period in 2014.



Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees were $0.9 million for both quarters ended March 31, 2013 and 2014. As a percentage of total net revenues after provision for loan losses, our brokerage, clearing and exchange fees decreased from 3.8% for the quarter ended March 31, 2013 to 2.5% for the same period in 2014.



Travel and Business Development

Travel and business development expense decreased from $1.0 million for the quarter ended March 31, 2013 to $0.9 million for the quarter ended March 31, 2014. As a percentage of total net revenues after provision for loan losses, travel and business development expense decreased from 4.1% for the quarter ended March 31, 2013 to 2.3% for the same period in 2014.



Communications and Technology

Communications and technology expenses were $0.9 million for the quarters ended March 31, 2013 and 2014. As a percentage of total net revenues after provision for loan losses, communications and technology expense decreased from 3.7% for the quarter ended March 31, 2013 to 2.5% for the same period in 2014. Professional Fees Professional fees were $1.0 million and $0.8 million for the quarters ended March 31, 2013 and 2014, respectively. As a percentage of total net revenues after provision for loan losses, professional fees decreased from 4.4% for the quarter ended March 31, 2013 to 2.1% for the same period in 2014. Other Expenses Other expenses increased $0.2 million, from $1.1 million for the quarter ended March 31, 2013 to $1.3 million for the quarter ended March 31, 2014. As a percentage of total net revenues after provision for loan losses, other expenses were 4.8% and 3.4% for the quarters ended March 31, 2013 and 2014, respectively.



Net Income Attributable to Non-controlling Interest

Net income attributable to non-controlling interest decreased from $8 thousand for the quarter ended March 31, 2013 to a $5.9 million loss for the quarter ended March 31, 2014. Non-controlling interest for the quarter ended March 31, 2014 includes the interest of third parties in CLO I, CLO II, HGC, HGC II, and HCAP Advisors, partially-owned subsidiaries consolidated in our financial statements. Non-controlling interest for the quarter ended March 31, 2013 includes the interest of third parties in CLO I, HCC LLC, HGC and HGC II, partially-owned subsidiaries consolidated in our financial statements. Provision for Income Taxes For the quarters ended March 31, 2013 and 2014, we recorded income tax benefit of $0.8 million and tax expense of $1.7 million, respectively. The effective tax rates for the quarters ended March 31, 2013 and 2014 were 33.66% and 731.13%, respectively. The difference in the effective tax rate was primarily attributable to the income associated with HGC, HGC II and HCC LLC which are consolidated for financial reporting purposes but not for tax purposes. Our operating net income assumes a combined federal, state and local income tax rate of 38% for both quarters ended March 31, 2013 and 2014. Segment income tax expense increased $0.5 million from $2.2 million for the quarter ended March 31, 2013 to $2.7 million for the quarter ended March 31, 2014. - 46 - --------------------------------------------------------------------------------



Financial Condition, Liquidity and Capital Resources

In the section that follows, we discuss the significant changes in the components of our balance sheet, cash flows and capital resources and liquidity for the three months ended March 31, 2014 to demonstrate where our capital is invested and the financial condition of the Company. Overview As of March 31, 2014, we had net liquid assets of $27.0 million, consisting of cash and cash equivalents, proceeds from short sales on deposit, receivable from clearing broker, marketable securities owned, and general partner investments in hedge funds managed by HCS, net of marketable securities sold but not yet purchased, accrued compensation, deferred compensation paid in January 2014, note payable and non-controlling interest. We have satisfied our capital and liquidity requirements primarily through the net proceeds from the initial public offering, the January 2013 issuance of the 2013 Senior Notes, the January 2014 issuance of the 2014 Senior Notes, and internally generated cash from operations. Most of our financial instruments, other than loans collateralizing asset-backed securities issued, loans held for investment and asset-backed securities issued, are recorded at fair value or amounts that approximate fair value. At March 31, 2014 and December 31, 2013, we had Level 3 assets (financial instruments measured on a recurring basis whose fair value was determined using unobservable inputs that are not corroborated by market data) of $108.4 million and $112.1 million, respectively, which represented 9.3% and 10.0% of total assets, respectively. Level 3 assets decreased by $3.7 million, due to unrealized loss of $6.3 million, partially offset by the purchased new assets of $2.8 million.



Liquidity Considerations Related to CLOs

On April 7, 2009, we invested $4.0 million of cash and granted $3.0 million original par amount, with a $2.3 million estimated fair value, of contingent consideration (a zero coupon note) to acquire 100% of the membership interests and net assets of $7.5 million of CLO I. In December 2009, we repurchased the contingent consideration for $1.8 million. As we own substantially all of the subordinated securities of the CLO, in accordance with the authoritative guidance under GAAP on accounting for consolidation of variable interest entities, we are the primary beneficiary and are required to consolidate all of the assets and liabilities of the CLO securitization structure even though it is a bankruptcy remote entity with no recourse to us. Our maximum exposure to loss of capital on the CLOs is the original April 7, 2009 investment of $4.0 million plus the $1.8 million paid to repurchase the contingent consideration related to the CLO I acquisition, $23.3 million related to CLO II, and $25.0 million investment related to CLO III plus any earnings retained in the CLOs since the acquisition or inception dates. However, for U.S. federal tax purposes, the CLOs are treated as a disregarded entity such that the taxable income earned in the CLO is taxable to us. If the CLOs are in violation of certain coverage tests, mainly any of its over-collateralization ratios, residual cash flows otherwise payable to us as owners of the subordinated notes would be required to be used to repay indebtedness senior to us in the securitization, or, for CLO II, to buy additional collateral. This could require us to pay income tax on earnings prior to the residual cash flow distributions to us. The CLOs must comply with certain asset coverage tests, such as tests that restrict the amount of discounted obligations and obligations rated "CCC" or lower it can hold. During any time the CLO exceeds such a limit, our ability, as the manager of CLO I, to sell assets and reinvest available principal proceeds into substitute assets is restricted. In addition, defaulted obligations, discounted assets (those purchased below 85% of the par value for CLO I and generally below 80% of the par value for CLO II) and assets rated "CCC" or lower in excess of applicable limits in the CLOs investment criteria are not given full par credit for purposes of calculation of the CLO over-collateralization ("OC") tests. We were in compliance with all OC tests on the determination dates since February 2010. However, we have been in violation and may be in the future. If CLOs were to violate the Class F test, or any more senior tests, we would be required to pay down the most senior notes with the residual cash flows until the violation was cured. In the most extreme case, if the CLO were in violation of the most senior OC test, the Class A note holders would have the ability to declare an event of default and cause an acceleration of all principal and interest outstanding on the notes. For financial reporting purposes, the loans and asset-backed securities of the CLOs are consolidated on our balance sheet. The loans are reported at their cost adjusted for amortization of liquidity discount and credit reserves, both of which were recorded at the CLO I acquisition date, purchase discounts and allowance for loan losses. The asset-backed securities are recorded net of liquidity discount only. At March 31, 2014, we had $783.3 million of loans collateralizing asset-backed securities, net, $44.5 million of restricted cash and $1.6 million of interest receivable funded by $713.5 million of asset-backed securities issued, net, and interest payable of $1.9 million. These assets and liabilities represented 71.3% of total assets and 76.9% of total liabilities respectively, reported on our Consolidated Statement of Financial Condition at March 31, 2014. - 47 -

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The tables below summarize the loans held by the CLOs grouped by range of outstanding balance, industry and Moody's Investors Services, Inc. rating category as of March 31, 2014.

(Dollars in thousands) As of March 31, 2014 Range of Outstanding Balance Number of Loans Maturity Date Total Principal $0 - $500 30 11/2015 - 3/2021 $ 11,842 $500 - $2,000 266 1/2015 - 2/2022 360,346 $2,000 - $5,000 109 12/2014 - 3/2021 322,661 $5,000 - $10,000 9 11/2016 - 12/2020 57,189 +$10,001 4 5/2015 - 5/2018 40,423 Total 418 $ 792,461 - 48 -

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(Dollars in thousands) As of March 31, 2014 Number of Outstanding % of Outstanding Industry Loans Balance Balance Aerospace & Defense 15 $ 23,252 2.9% Advertising, Printing & Publishing 2 2,500 0.3% Automobile 15 31,889 4.0% Banking 5 9,038 1.1% Banking, Finance, Insurance & Real Estate 14 27,124 3.4% Beverage, Food & Tobacco 23 45,436 5.7% Broadcasting & Entertainmt. 3 5,989 0.8% Cargo Transport 3 5,691 0.7% Capital Equipment 1 1,990 0.3% Chemicals, Plastics and Rubber 15 38,890 4.9% Construction & Building 10 16,170 2.0% Consumer Goods: Durable 7 9,775 1.2% Consumer Goods: Non-durable 5 7,518 0.8% Containers, Packaging and Glass 9 14,973 1.9% Diversified Natural Resources, Precious Metals and Minerals 1 1,103 0.1% Diversified/Conglomerate Mfg 8 6,141 0.8% Diversified/Conglomerate Service 16 27,057 3.4% Energy: Electricity 5 7,980 1.0% Energy: Oil & Gas 2 3,066 0.4% Ecological 5 5,396 0.7% Electronics 12 23,231 2.9% Environmental Industries 7 8,663 1.1% Farming & Agriculture 1 1,478 0.2% Finance 5 10,887 1.4% Food, Beverage & Tobacco 1 500 0.1% Forest Products & Paper 3 3,919 0.5% Grocery 2 2,463 0.3% Healthcare, Education & Childcare 39 88,697 11.2% High Tech Industries 21 42,747 5.4% Home and Office Furnishings, Housewares and Durable Consumer Products 2 5,638 0.7% Hotels, Motels, Inns and Gaming 21 45,156 5.7% Insurance 2 4,634 0.6% Leisure , Amusement, Motion Pictures & Entertainment 10 21,356 2.7% Machinery (Non-Agriculture,Non-Construction & Non-Electronic) 2 2,487 0.3% Media, Advertising, Printing & Publishing 1 1,000 0.1% Media: Broadcasting & Subscription 9 15,637 2.0% Media: Diversified & Production 6 12,291 1.6% Metals & Mining 4 7,641 1.0% Mining, Steel, Iron and Non-Precious Metals 1 2,793 0.4% Oil & Gas 4 24,684 3.1% Personal &Non-Durable Consumer Products 6 7,393 0.9% Personal and Non-Durable Consumer Products (mfg only) 1 489 0.1% Personal Transportation 2 2,989 0.4% Personal, Food & Misc Services 8 12,028 1.5% Printing & Publishing 3 10,732 1.4% Retail Store 22 40,162 5.1% Services: Business 18 24,117 3.0% Services: Consumer 9 21,489 2.7% Telecommunications 17 28,702 3.6% Textiles & Leather 2 3,844 0.5% Transportation: Consumer 3 6,120 0.8% Utilities 6 11,020 1.4% Utilities: Electric 1 1,500 0.2% Utilities: Oil & Gas 1 1,996 0.3% Wholesale 2 3,000 0.4% 418 792,461 100% - 49 -

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(Dollars in thousands) As of March 31, 2014 Number of Outstanding % of Outstanding Moody's Rating Category Loans Balance Balance Baa2 1 $ 2,000 0.3% Baa3 2 13,824 1.7% Ba1 7 20,613 2.6% Ba2 28 69,504 8.8% Ba3 56 136,093 17.2% B1 108 203,941 25.7% B2 169 269,642 34.0% B3 40 63,578 8.0% Caa1 5 11,372 1.4% Caa2 1 1,500 0.2% Ca 1 394 0.1% Total 418 $ 792,461 100%



Other Liquidity Considerations

As of March 31, 2014, our indebtedness consists of our bonds payable. We have no outstanding balances on our revolving lines of credit with City National Bank ("CNB"), related to JMP Group LLC ("JMPG LLC"), our wholly-owned subsidiary, or HGC II, also defined below. In January 2013, we raised approximately $46.0 million from the sale of 8.00% Senior Notes ("2013 Senior Notes"). In January 2014, we raised an additional approximate $48.3 million from the sale of 7.25% Senior Notes ("2014 Senior Notes"). The 2013 Senior Notes will mature on January 15, 2023 and may be redeemed in whole or in part at any time or from time to time at the Company's option on or after January 15, 2016, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. The 2013 Senior Notes bear interest at a rate of 8.00% per year, payable quarterly on January 15, April 15, July 15 and October 15 of each year. The 2014 Senior Notes will mature on January 15, 2021, and may be redeemed in whole or in part at any time or from time to time at the Company's option on or after January 15, 2017, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest. These 2014 Senior Notes bear interest at a rate of 7.25% per year, payable quarterly on January 15, April 15, July 15 and October 15 of each year, beginning April 15, 2014. As of March 31, 2014 (after taking into account any payments under the Credit Agreement that day), JMPG LLC had no outstanding indebtedness under the Credit Agreement with CNB. The Revolving Line of Credit has a maximum principal balance of the lesser of (i) $30.0 million, and (ii) $58.5 million minus (a) the principal amount of the Term Loan, and (b) the principal amount of the Broker/Dealer Line of Credit (as defined below) then outstanding. Under the Credit Agreement, CNB has agreed to issue certain letters of credit in an amount not exceeding $2.5 million, the stated amounts of which will be a reduction to the availability of the Revolving Line of Credit and drawings thereunder may be converted into drawings under the Revolving Line of Credit. The Revolving Line of Credit will remain available through April 30, 2014. On such date, any outstanding amount converts into a term loan (the "Converted Term Loan"). The Converted Term Loan will be repaid in quarterly installments of 3.75% of such term loan for the first two years, 5.00% of such term loan for the next two years, and the remainder due at maturity on August 24, 2017. The Credit Agreement provides that the proceeds of the CNB Loans are subject to the following restrictions: (i) the Initial Term Loan and up to $5.0 million of the Revolving Line of Credit Loans may not be used for any purpose other than to fund certain permitted investments and acquisitions and to fund JMPG LLC's working capital needs in the ordinary course of its business; (ii) all other proceeds of the Revolving Line of Credit may not be used for any purpose other than to make investments in HCS and by HCS to make investments in loans that are made to persons that are not affiliates of borrower; and (iii) the Term Loan may not be used for any purpose other than to make equity investments in CLOs and by CLOs to make certain permitted investments in collateralized loan obligations. The Credit Agreement includes minimum fixed charge and interest charge coverage ratios applicable to us and our subsidiaries, a minimum net worth covenant applicable to us and our subsidiaries and a minimum liquidity covenant applicable to JMPG LLC and its subsidiaries. As of March 31, 2014, we were in compliance with all of these financial covenants. The Credit Agreement also includes an event of default for a "change of control" that tests, in part, the composition of our ownership and an event of default if two or more of the members of the Executive Committee fail to be involved actively on an ongoing basis in the management of JMPG LLC or any of its subsidiaries.



The CNB Loans are guaranteed by HCS and secured by a lien on substantially all assets of JMPG LLC and HCS.

Separately, under a Revolving Note and Cash Subordination Agreement, dated as of April 8, 2011, by and between CNB and JMP Securities, as amended, JMP Securities has a subordinated revolving line of credit with CNB (the "Broker/Deal Line of Credit"). Draws on the Broker/Deal Line of Credit bear interest at the rate of prime. The Broker/Deal Line of Credit matures on May 6, 2015. There were no borrowings on this line of credit as of March 31, 2014. JMPG LLC has guaranteed the obligations under the Broker/Deal Line of Credit pursuant to a General Continuing Guaranty dated as of April 8, 2011. On April 30, 2014, the Company entered into an amendment to its Credit Agreement (the "Amendment") between JMP Group and CNB. The Amendment provides a $25.0 million line of credit with a revolving period of two years. At the end of these two years, any outstanding amounts convert to a term loan. This term loan will be repaid in equal quarterly installments over the following three years. Proceeds for this line of credit will be used to make financial investments, for working capital purposes, for general corporate purposes, as well as a $5.0 million sublimit to issue letters of credit. Also pursuant to this Amendment, the $15.0 million line of credit held at JMP Securities, which was scheduled to mature May 6, 2014, was increased to $20.0 million and renewed for one year. On May 6, 2015, any existing outstanding amount will convert to a loan maturing the following year. The remaining terms of this line of credit are consistent with those of the existing line of credit. - 50 -

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On November 22, 2013, HGC II entered into a line of credit of $3.0 million with CNB. Draws on the line of credit bear interest at the rate of prime plus 0.5% per annum, paid quarterly. The line of credit will be available through December 1, 2015 or fifteen days prior to the expiration of the commitment period of HGC II unless renewed. Proceeds for this line of credit are used to purchase investments, prior to capital calls from HGC II investors. The Company had no outstanding balance on this line of credit as of March 31, 2014. The timing of bonus compensation payments to our employees may significantly affect our cash position and liquidity from period to period. While our employees and managing directors are generally paid semi-monthly during the year, bonus compensation, which makes up a larger portion of total compensation, is generally paid once a year during the first two months of the following year. In the first two months of 2014, we paid out $49.0 million of cash bonuses for 2013, excluding employer payroll tax expense. The Company currently intends to declare quarterly cash dividends on all outstanding shares of common stock. The Company's board of directors declared a quarterly cash dividend of $0.045 per share of common stock in March 2014. The dividends were paid in April 2014 for the fourth quarter of 2013. During the three months ended March 31, 2014, the Company repurchased 4,656 shares of the Company's common stock at an average price of $7.04 per share, for an aggregate purchase price of $33 thousand. The repurchased were deemed to have been repurchased in connection with employee stock plans, whereby the Company's shares were issued on a net basis to employees for the payment of applicable statutory withholding taxes and therefore such withheld shares are deemed to be purchased by the Company. We had total restricted cash of $75.6 million comprised primarily of $59.5 million of restricted cash at JMP Credit on March 31, 2014. This balance was comprised of $6.6 million in interest received from loans in CLO I, and $53.0 million in principal cash. The interest and fees will be restricted until the next payment date to note holders of the CLOs. The principal restricted cash will be used to buy additional loans. Because of the nature of our investment banking and sales and trading businesses, liquidity is important to us. Accordingly, we regularly monitor our liquidity position, including our cash and net capital positions. We believe that our available liquidity and current level of equity capital, combined with the net proceeds to us from the initial public offering and funds anticipated to be provided by our operating activities, will be adequate to meet our liquidity and regulatory capital requirements for at least the next twelve months. If circumstances required it, we could improve our liquidity position by discontinuing repurchases of the Company"s common stock, halting cash dividends on our common stock and reducing cash bonus compensation paid. JMP Securities, our wholly-owned subsidiary and a registered securities broker-dealer, is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital, as defined, and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. SEC regulations also provide that equity capital may not be withdrawn or cash dividends paid if certain minimum net capital requirements are not met. JMP Securities had net capital of $32.0 million and $59.1 million, which were $31.0 million and $58.1 million in excess of the required net capital of $1.0 million at March 31, 2014 and December 31, 2013, respectively. JMP Securities' ratio of aggregate indebtedness to net capital was 0.45 to 1 and 0.16 to 1 at March 31, 2014 and December 31, 2013, respectively.



A condensed table of cash flows for the three months ended March 31, 2014 and 2013 is presented below.


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Source: Edgar Glimpses