News Column

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

July 31, 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. - 35 - --------------------------------------------------------------------------------



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 June 30, 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 June 30, 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.



Redemption provisions of our funds require at least 90 days' advance notice, except for one fund that requires twelve months advance notice.

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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 31, June 30, 2014 December 31, 2013 June 30, 2014 2013 Funds Managed by HCS or HCAP Advisors: Hedge Funds: Harvest Opportunity Partners II (2) $ 133,170 $ 123,481 $ 24,503$ 15,847 Harvest Small Cap Partners 394,117 322,883 4,458 1,003 Harvest Franchise Fund 116,613 114,145 4,010 2,909 Harvest Agriculture Select (2) 108,517 90,589 21,202 14,578 Harvest Technology Partners (2) 47,524 42,661 14,647 10,311 Private Equity Funds: Harvest Growth Capital LLC (3) 36,027 35,130 1,717 1,649 Harvest Growth Capital LLC II (3) 75,759 73,552 1,706 1,748 Funds of Funds: JMP Masters Fund 49,571 50,686 147 139 REITs: New York Mortgage Trust 36,554 34,966 N/A N/A Loans: Harvest Capital Credit Corporation 90,270 72,361 N/A N/A HCS and HCAP Advisors Totals $ 1,088,122 $ 960,454 $ 72,390$ 48,184 CLOs Managed by JMPCA: CLO I (3) 435,994 441,533 N/A N/A CLO II (3) 330,752 330,431 N/A N/A CLO III (3) 123,108 10,003 N/A N/A JMPCA Totals $ 889,854 $ 781,967 N/A N/A JMP Group Inc. Totals $ 1,977,976 $ 1,742,421 $ 72,390$ 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 June 30, 2014 and December 31, 2013. Funds Managed by HCS Private Equity Hedge Funds Funds Funds of Funds Total AUM at December 31, 2013 $ 693,759$ 108,682$ 50,686 853,127 Contributions 53,266 4,489 - 57,755 Redemptions (36,305 ) - (2,000 ) (38,305 ) Distributions from realization event - (2,203 ) - (2,203 ) Appreciation 89,221 818 885 90,924 AUM at June 30, 2014 $ 799,941$ 111,786$ 49,571 961,298

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Funds Managed by HCS Private Equity Total Hedge Funds Funds Funds of Funds AUM at December 31, 2012 $ 605,491$ 47,354$ 42,182 695,027 Contributions 83,645 36,908 25 120,578 Redemptions (61,207 ) - (750 ) (61,957 ) Distributions from realization event - (1,692 ) - (1,692 ) Appreciation 45,189 (490 ) 5,931 50,630 AUM at June 30, 2013 $ 673,118 82,080 47,388 802,586



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AUM related to hedge funds, private equity funds and funds of funds increased $108.2 million, or 12.7%, from $853.1 million at December 31, 2013 to $961.3 million at June 30, 2014. This increase was primarily attributed to capital contributions of $53.4 million and appreciation of $89.2 million, related to hedge funds managed by HCS, partially offset by redemptions of $36.3 million in these funds. AUM related to hedge funds, private equity funds and funds of funds increased $107.6 million, or 15.5%, from $695.0 million at December 31, 2012 to $802.6 million at June 30, 2013. This increase was primarily attributed to capital contributions of $83.6 million and appreciation of $45.2 million related to hedge funds managed by HCS, partially offset by $61.2 million of redemptions in these funds. (In thousands) Three Months Ended June 30, 2014 Three Months Ended June 30, 2013 Company's Company's Share of Share of Change in Change in Fair Value Management Fee Incentive Fee Fair Value Management Fee Incentive Fee Hedge Funds: Harvest Opportunity Partners II (1) $ 229 247 32 $ 366 363 $ 137 Harvest Small Cap Partners 675 1,564 10,760 8 1,408 393 Harvest Franchise Fund 207 306 2 287 274 - Harvest Agriculture Select (1) 378 258 70 (299 ) 158 - Harvest Technology Partners (1) 339 78 1 205 154 - Harvest Diversified Partners - - - 112 45 13 Private Equity Funds: Harvest Growth Capital LLC (2) 153 85 - 117 105 - Harvest Growth Capital II LLC (2) 107 281 - (30 ) 282 - Funds of Funds: JMP Masters Fund (6 ) 122 - 10 106 - REITs: New York Mortgage Trust - - - - - 293 Loans: Harvest Capital Credit LLC (2) N/A - - N/A 31 66 Harvest Capital Credit Corporation N/A 438 485 (202 ) 139 - CLOs: CLO I (2) N/A 557 - N/A 596 - CLO II (2) N/A 413 - N/A 219 - CLO III (2) N/A 78 - N/A - - Totals $ 2,082 $ 4,427 $ 11,350$ 574 $ 3,880 $ 902



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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. - 38 -

-------------------------------------------------------------------------------- (In thousands) Six Months Ended June 30, 2014 Six Months Ended June 30, 2013 Company's Company's Share of Share of Change in Change in Fair Value Management Fee Incentive Fee Fair Value Management Fee Incentive Fee Hedge Funds: Harvest Opportunity Partners II (1) $ 662 477 120 $ 752 $ 685 $ 350 Harvest Small Cap Partners 733 3,075 13,185 235 2,758 4,034 Harvest Franchise Fund 221 618 2 463 510 - Harvest Agriculture Select (1) 975 498 150 96 294 181 Harvest Technology Partners (1) 467 156 2 (85 ) 337 - Harvest Diversified Partners - - - 480 87 68 Private Equity Funds: Harvest Growth Capital LLC (2) 91 182 - 117 211 30 Harvest Growth Capital II LLC (2) (134 ) 563 - (50 ) 556 - Funds of Funds: JMP Masters Fund 8 242 16 18 204 -



REITs:

New York Mortgage Trust - - 310 - - 593



Loans:

Harvest Capital Credit LLC (2) N/A - - N/A 108 386 Harvest Capital Credit Corporation N/A 828 127 (202 ) 139 - CLOs: CLO I (2) N/A 1,107 - N/A 1,180 - CLO II (2) N/A 823 - 219 - CLO III (2) N/A 148 - N/A - - Totals $ 3,023 $ 8,717 $ 13,912$ 1,824 $ 7,288 $ 5,642



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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).



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. - 39 -

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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 at CLO I deemed impaired subsequent to the acquisition date, or loans held at CLO II or CLO III, 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 at CLO I, CLO II and CLO III. 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. 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. - 40 -

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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 six months ended June 30, 2013 and 2014 includes the interest of third parties in CLO I, CLO II, HGC, HGC II, HCC LLC, 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%. 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. - 41 - --------------------------------------------------------------------------------

Results of Operations The following table sets forth our results of operations for the three and six months ended June 30, 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 June 30, 2013 to 2014 2014 2013 % Revenues Investment banking $ 23,061$ 21,057$ 2,004 9.5 % Brokerage 6,474 6,980 (506 ) -7.2 % Asset management fees 14,858 3,527 11,331 321.3 % Principal transactions 9,688 2,292 7,396 322.7 % Gain (loss) on sale, payoff and mark-to-market of loans (551 ) 336 (887 ) -264.0 % Net dividend income 262 55 207 376.4 % Other income 150 26 124 476.9 % Non-interest revenues 53,942 34,273 19,669 57.4 % Interest income 9,212 7,711 1,501 19.5 % Interest expense (5,424 ) (10,105 ) 4,681 -46.3 % Net interest (expense) income 3,788 (2,394 ) 6,182 258.2 % Provision for loan losses (212 ) (975 ) 763 -78.3 % Total net revenues after provision for loan losses 57,518 30,904 26,614 86.1 % Non-interest expenses Compensation and benefits 37,979 24,776 13,203 53.3 % Administration 1,760 4,005 (2,245 ) -56.1 % Brokerage, clearing and exchange fees 818 1,025 (207 ) -20.2 % Travel and business development 980 1,039 (59 ) -5.7 % Communication and technology 942 832 110 13.2 % Professional fees 1,269 812 457 56.3 % Other 1,408 1,270 138 10.9 % Total non-interest expenses 45,156 33,759 11,397 33.8 % Loss before income tax expense 12,362 (2,855 ) 15,217 533.0 % Income tax expense (benefit) 2,450 (644 ) 3,094 480.4 % Net income (loss) 9,912 (2,211 ) 12,123 -548.3 % Less: Net (loss) income attributable to non-controlling interest 6,717 (776 ) 7,493 -965.6 % Net income (loss) attributable to JMP Group Inc. $ 3,195$ (1,435 )$ 4,630 322.6 % - 42 -

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Change from (In thousands) Six Months Ended June 30, 2013 to 2014 2014 2013 % Revenues Investment banking $ 48,114$ 33,164$ 14,950 45.1 % Brokerage 13,130 12,174 956 7.9 % Asset management fees 20,402 10,278 10,124 98.5 % Principal transactions 5,995 4,209 1,786 42.4 % Gain (loss) on sale, payoff and mark-to-market of loans (171 ) 1,425 (1,596 ) -112.0 % Net dividend income 497 47 450 957.4 % Other income 372 314 58 18.5 % Non-interest revenues 88,339 61,611 26,728 43.4 % Interest income 17,800 15,869 1,931 12.2 % Interest expense (10,252 ) (21,404 ) 11,152 -52.1 % Net interest (expense) income 7,548 (5,535 ) 13,083 236.4 % Provision for loan losses (709 ) (1,924 ) 1,215 -63.1 % Total net revenues after provision for loan losses 95,178 54,152 41,026 75.8 % Non-interest expenses Compensation and benefits 69,355 44,381 24,974 56.3 % Administration 3,482 5,336 (1,854 ) -34.7 % Brokerage, clearing and exchange fees 1,743 1,912 (169 ) -8.8 % Travel and business development 1,831 1,997 (166 ) -8.3 % Communication and technology 1,890 1,685 205 12.2 % Professional fees 2,076 1,836 240 13.1 % Other 2,672 2,383 289 12.1 % Total non-interest expenses 83,049 59,530 23,519 39.5 % Loss before income tax expense 12,129 (5,378 ) 17,507 325.5 % Income tax expense (benefit) 4,146 (1,456 ) 5,602 384.8 % Net income (loss) 7,983 (3,922 ) 11,905 -303.5 % Less: Net income (loss) attributable to non-controlling interest 790 (768 ) 1,558 -202.9 % Net income (loss) attributable to JMP Group Inc. $ 7,193$ (3,154 )$ 10,347 328.1 % - 43 -

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Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

Overview Total net revenues after provision for loan losses increased $26.6 million, or 86.1%, from $30.9 million for the quarter ended June 30, 2013 to $57.5 million for the quarter ended June 30, 2014, driven by increases in non-interest revenues of $19.7 million and net interest income of $6.2 million. Non-interest revenues increased $19.6 million, or 57.4%, from $34.3 million for the quarter ended June 30, 2013 to $53.9 million in the same period in 2014. This increase was primarily driven by an $11.3 million increase in asset management fees and a $7.4 million increase in principal transactions revenues. Net interest income increased $6.2 million, or 258.2%, from $2.4 million net interest expense for the quarter ended June 30, 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 $0.9 million interest expense related to the bond issued in January 2014. Provision for loan losses decreased $0.8 million from $1.0 million for the quarter ended June 30, 2013 to $0.2 million for the quarter ended June 30, 2014. The decrease was driven by the general reserve recorded in connection with the loan portfolio underlying CLO II which closed in the quarter ended June 30, 2013. Total non-interest expenses increased $11.4 million, or 33.8%, from $33.8 million for the quarter ended June 30, 2013 to $45.2 million for the quarter ended June 30, 2014, primarily due to an increase in compensation and benefits of $13.2 million. Net income attributable to JMP Group Inc. increased $4.6 million, or 322.6%, from a $1.4 million loss after income tax benefit of $0.6 million for the quarter ended June 30, 2013 to $3.2 million net income after income tax expense of $2.5 million for the quarter ended June 30, 2014.



Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Overview



Total net revenues after provision for loan losses increased $41.0 million, or 75.8%, from $54.2 million for the six months ended June 30, 2013 to $95.2 million for the six months ended June 30, 2014, driven by increases in non-interest revenues of $26.7 million and net interest income of $13.0 million.

Non-interest revenues increased $26.7 million, or 43.4%, from $61.6 million for the six months ended June 30, 2013 to $88.3 million in the same period in 2014. This increase was primarily driven by a $15.0 million increase in investment banking revenues and a $10.1 million increase in asset management fees. Net interest income increased $13.0 million, or 236.4%, from $5.5 million net interest expense for the six months ended June 30, 2013 to $7.5 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 $1.8 million interest expense related to the bond issued in January 2014. Provision for loan losses decreased $1.2 million from $1.9 million for the six months ended June 30, 2013 to $0.7 million for the six months ended June 30, 2014. The decrease was driven by a specific reserve from one non-accrual loan held at JMP Credit recorded in the six months ended June 30, 2013 in addition to the general reserve recorded in connection with the loan portfolio underlying CLO II which closed in the first quarter of 2013, partially offset by general reserves recorded in 2014 in connection with the loan portfolio underlying CLO III which closed in the fourth quarter of 2013.



Total non-interest expenses increased $23.5 million, or 39.5%, from $59.5 million for the six months ended June 30, 2013 to $83.0 million for the six months ended June 30, 2014, primarily due to an increase in compensation and benefits of $24.3 million.

Net income attributable to JMP Group Inc. increased $10.4 million, or 328.1%, from a $3.2 million loss after income tax benefit of $1.5 million for the six months ended June 30, 2013 to $7.2 million net income after income tax expense of $4.1 million for the six months ended June 30, 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. - 44 - -------------------------------------------------------------------------------- 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; (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 three and six months ended June 30, 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 June 30, 2014 Corporate Operating Investment (In thousands) Broker-Dealer Asset Management Credit Platforms Income Corporate Costs Elimin-ations Total Segments Revenues Investment banking $ 23,059 $ - $ - $ 23,059 $ - $ - $ 2 $ 23,061 Brokerage 6,474 - - 6,474 - - - 6,474 Asset management related fees - 15,461 1,546 17,007 - - (1,632 ) 15,375 Principal transactions - - - - 1,977 - - 1,977 Gain (loss) on sale, payoff and mark-to-market of loans - - - - (551 ) - - (551 ) Net dividend income - - - - 262 - - 262 Net interest income - - - - 3,791 - - 3,791 Provision for loan losses - - - - 169 - - 169 Adjusted net revenues 29,533 15,461

1,546 46,540 5,648 - (1,630 ) 50,558 Non-interest expenses Non-interest expenses 24,560 14,533 988 40,081 1,466 3,975

(1,632 ) 43,890 Less: Non-controlling interest - (1) 73 - 73 92 - - 165 Operating pre-tax net income 4,973 855

558 6,386 4,090 (3,975 ) 2 6,503 Income tax expense (assumed rate of 38%) 1,890 325 212 2,427 1,554 (1,509 ) 1 2,473 Operating net income (loss) $ 3,083 $ 530 $ 346$ 3,959$ 2,536 $ (2,466 ) $ 1 $ 4,030 - 45 -

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Three Months Ended June 30, 2013 Corporate Operating Investment (In thousands) Broker-Dealer Asset Management Credit Platforms Income Corporate Costs Elimin-ations Total Segments Revenues Investment banking $ 21,309 $ - $ - $ 21,309 $ - $ - $ (253 ) $ 21,056 Brokerage 6,980 - - 6,980 - - - 6,980 Asset management related fees - 4,220 1,276 5,496 - - (1,420 ) 4,076 Principal transactions - - - - 1,475 - - 1,475 Gain (loss) on sale, payoff and mark-to-market of loans - - - - 336 - - 336 Net dividend income - - - - 476 - - 476 Net interest income - - - - 3,394 - - 3,394 Provision for loan losses - - - - 153 - - 153 Adjusted net revenues 28,289 4,220 1,276 33,785 5,834 - (1,673 ) 37,946 Non-interest expenses Non-interest expenses 23,486 6,443 1,068 30,997 205 4,247 (1,724 ) 33,725 Less: Non-controlling interest - (1,351 ) - (1,351 ) 245 - - (1,106 ) Operating pre-tax net income 4,803 (872 ) 208 4,139 5,384 (4,247 ) 51 5,327 Income tax expense (assumed rate of 38%) 1,825 (331 ) 79 1,573 2,046 (1,614 ) 19 2,024 Operating net income (loss) $ 2,978 $ (541 ) $ 129$ 2,566$ 3,338 $ (2,633 ) $ 32 $ 3,303



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 June 30, 2013 and 2014.

(In thousands) Three Months Ended June 30, 2014 2013 Operating net income $ 4,030$ 3,303 Addback of Income tax expense (assumed rate of 38%) 2,473



2,024

Total Segments operating pre-tax net income $ 6,503$ 5,327 Subtract / (Add back) Stock options 504 259 Compensation expense - RSUs 934 704 Deferred compensation program accounting adjustment (891 )



(1,146 ) Net unrealized loss on strategic equity investments and warrants.

(69 ) (243 ) General loan loss reserve for CLOs 380 821



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

-



6,239

Unrealized mark-to-market gain - HCC - 772



Consolidated pre-tax net income (loss) attributable to JMP Group Inc.

$ 5,645$ (2,079 ) Income tax expense (benefit) 2,450 (644 ) Consolidated Net Income (Loss) attributable to JMP Group Inc. $ 3,195$ (1,435 ) 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 $3.5 million for the three months ended June 30, 2013. The reconciling items for the quarter ended June 30, 2013 from adjusted operating net income to operating net income include adding back $0.4 million non-cash gains on the acquired loan portfolio and adding back the related compensation expense of $0.4 million. - 46 - --------------------------------------------------------------------------------

Six Months Ended June 30, 2014 Corporate Operating Investment (In thousands) Broker-Dealer Asset Management Credit Platforms Income Corporate Costs Elimin-ations Total Segments Revenues Investment banking $ 48,202 $ - $ - $ 48,202 $ - $ - $ (88 ) $ 48,114 Brokerage 13,130 - - 13,130 - - - 13,130 Asset management related fees 50 21,685 2,607 24,342 - - (2,822 ) 21,520 Principal transactions - - - - 3,667 - - 3,667 Gain (loss) on sale, payoff and mark-to-market of loans - - - - (171 ) - - (171 ) Net dividend income - - - - 497 - - 497 Net interest income - - - - 7,568 - - 7,568 Provision for loan losses - - - - 222 - - 222 Adjusted net revenues 61,382 21,685

2,607 85,674 11,783 - (2,910 ) 94,547 Non-interest expenses Non-interest expenses 49,876 20,914 2,012 72,802 2,826 8,214 (2,822 ) 81,020 Less: Non-controlling interest - (1) (283 ) - (283 ) 242 - - (41 ) Operating pre-tax net income 11,506 1,054 595 13,155 8,715 (8,214 ) (88 ) 13,568 Income tax expense (assumed rate of 38%) 4,372 401 226 4,999 3,312 (3,120 ) (33 ) 5,158 Operating net income (loss) $ 7,134 $ 653 $ 369$ 8,156$ 5,403 $ (5,094 ) $ (55 ) $ 8,410 Six Months Ended June 30, 2013 Corporate Operating Investment (In thousands) Broker-Dealer Asset Management Credit Platforms Income Corporate Costs Elimin-ations Total Segments Revenues Investment banking $ 33,487 $ - $ - $ 33,487 $ - $ - $ (323 ) $ 33,164 Brokerage 12,174 - - 12,174 - - - 12,174 Asset management related fees - 12,379 2,160 14,539 - - (2,566 ) 11,973 Principal transactions - - - - 3,658 - 6 3,664 Gain (loss) on sale, payoff and mark-to-market of loans - - - - 1,335 - - 1,335 Net dividend income - - - - 725 - - 725 Net interest income - - - - 7,683 - - 7,683 Provision for loan losses - - - - (796 ) - - (796 ) Adjusted net revenues 45,661 12,379 2,160 60,200 12,605 - (2,883 ) 69,922 Non-interest expenses Non-interest expenses 39,219 13,947 1,795 54,961 (641 ) 8,236 (2,863 ) 59,693 Less: Non-controlling interest - (1,351 ) - (1,351 ) 419 - - (932 ) Operating pre-tax net income 6,442 (217 ) 365 6,590 12,827 (8,236 ) (20 ) 11,161 Income tax expense (assumed rate of 38%) 2,448 (82 ) 139 2,504 4,874 (3,130 ) (8 ) 4,241 Operating net income (loss) $ 3,994 $ (135 ) $ 226$ 4,086$ 7,953 $ (5,106 ) $ (12 ) $ 6,920 - 47 -

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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 six months ended June 30, 2013 and 2014.

(In thousands) Six Months Ended June 30, 2014 2013 Operating net income $ 8,410$ 6,920 Addback of Income tax expense (assumed rate of 38%) 5,158



4,241

Total Segments operating pre-tax net income $ 13,568$ 11,161 Subtract / (Add back) Stock options 899 396 Compensation expense - RSUs 1,787 1,320 Deferred compensation program accounting adjustment (1,488 )



(2,270 ) Net unrealized loss on strategic equity investments and warrants.

106 (85 ) General loan loss reserve for CLOs 925 821



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

-



14,979

Unrealized mark-to-market gain - HCC - 610



Consolidated pre-tax net income (loss) attributable to JMP Group Inc.

$ 11,339$ (4,610 ) Income tax expense (benefit) 4,146 (1,456 ) Consolidated Net Income (Loss) attributable to JMP Group Inc. $ 7,193$ (3,154 ) 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 $7.3 million for the six months ended June 30, 2013. The reconciling items for the six months ended June 30, 2013 from adjusted operating net income to operating net income include adding back $0.2 million non-cash gains on the acquired loan portfolio, adding back the specific reserve on loans from the portfolio of $0.9 million, and adding back the related compensation expense of $0.5 million.



Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

Revenues Investment Banking Investment banking revenues increased $2.0 million, or 9.5%, from $21.1 million for the quarter ended June 30, 2013 to $23.1 million for the same period in 2014. As a percentage of total net revenues after provision for loan losses, investment banking revenues decreased from 68.1% for the quarter ended June 30, 2013 to 40.1% for the quarter ended June 30, 2014. Our segment reported investment banking revenues, earned in our Broker-Dealer segment, increased $2.0 million from $21.1 million for the quarter ended June 30, 2013 to $23.1 million for the same period in 2014. Public equity underwriting revenues increased $5.2 million, or 54.6%, from $9.5 million for the quarter ended June 30, 2013 to $14.7 million for the quarter ended June 30, 2014. We executed 37 and 34 public equity underwriting transactions in the quarters ended June 30, 2013 and June 30, 2014, respectively. We acted as a lead manager on six transactions in the quarter ended June 30, 2014 compared to seven in the same period in 2013. The increase was attributed to an increase in average revenues per transaction. Our strategic advisory revenues increased $3.1 million, or 81.4%, from $3.8 million for the quarter ended June 30, 2013 to $6.9 million for the quarter ended June 30, 2014. We executed eight strategic advisory transactions in the quarter ended June 30, 2014 compared to four in the quarter ended June 30, 2013. These increases were partially offset by declines in private capital markets and other transactions and debt and convertible. Our debt and convertible revenues decreased $3.8 million, or 77.7%, from $4.9 million for the quarter ended June 30, 2013 to $1.1 million for the same period in 2014. We executed five transactions related to debt and convertible revenue transactions in the quarter ended June 30, 2014 compared to eight in the same period in 2013. Private capital markets and other transaction decreased from $2.8 million for the quarter ended June 30, 2013 to $0.3 million for the same period in 2014. We executed two debt and convertible transactions in the quarter ended June 30, 2013 compared to zero in the same period in 2014. Brokerage Revenues Brokerage revenues earned in our Broker-Dealer segment decreased $0.5 million, or 7.6%, from $7.0 million for the quarter ended June 30, 2013 to $6.5 million for the quarter ended June 30, 2014. The decrease was mainly the result of less volume. Brokerage revenues decreased as a percentage of total net revenues after provision for loan losses, from 22.6% for the quarter ended June 30, 2013 to 11.3% for the quarter ended June 30, 2014. On an adjusted basis, brokerage revenues were 18.4% and 12.8% for the quarters ended June 30, 2013 and 2014, respectively, as a percentage of adjusted net revenue after provision for loan losses. - 48 -

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Asset Management Fees (In thousands) Three Months Ended June 30, 2014 2013 Base management fees: Fees reported as asset management fees $ 3,163$ 2,691 Fees earned at HGC, HGC II and HCC LLC 367 457 Total base management fees 3,530



3,148

Incentive fees: Fees reported as asset management fees $ 11,695 $ 836 Fees earned at HGC, HGC II and HCC LLC - 66 Total incentive fees 11,695 902 Other fee income: Fundraising and other income: $ 150 $ 26 Total other fee income 150 26 Asset management related fees: Fees reported as asset management fees $ 14,858$ 3,527 Fees reported as other income 150 26 Fees earned at HGC, HGC II and HCC LLC 367 523



Total Segment asset management related fee revenues $ 15,375$ 4,076 Consolidation adjustment

(367 )



(523 ) Adjusted total asset management related fees: $ 15,008$ 3,553

Fees reported as asset management fees were $3.5 million and $14.9 million for the quarters ended June 30, 2013 and 2014, respectively. As a percentage of total net revenues after provision for loan losses, asset management revenues increased from 11.4% for the quarter ended June 30, 2013 to 25.8% for the quarter ended June 30, 2014. Fees reported as other income increased $0.2 million, or 476.9% from $26 thousand for the quarter ended June 30, 2013 to $0.2 million for the quarter ended June 30, 2014. As a percentage of total net revenues after provision for loan losses, other income increased from 0.1% for the quarter ended June 30, 2013 to 0.3% for the same period in 2014. 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 increased $11.3 million from $4.1 million for the quarter ended June 30, 2013 to $15.4 million for the quarter ended June 30, 2014. The increase primarily was attributed to the $10.8 million increase in incentive fees, from $0.9 million for the quarter ended June 30, 2013 to $11.7 million for the same period in 2014. The increase in incentive fees was driven by a $10.4 million increase related to Harvest Small Cap Partners ("HSCP"). Total base management fee increased $0.4 million from $3.1 million for the quarter ended June 30, 2013 to $3.5 million for the same period in 2014. The increase was driven by increases of $0.3 million in management fees from HCAP Advisors, which was created in the midst of the second quarter of 2013. On an adjusted basis, adjusted asset management related fees were 10.7% and 30.4% for the quarters ended June 30, 2013 and 2014, respectively, as a percentage of adjusted net revenues after provision for loan losses. Principal Transactions Principal transaction revenues increased $7.4 million from $2.3 million for the quarter ended June 30, 2013 to $9.7 million for the same period in 2014. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were 7.4% for the quarter ended June 30, 2013 and 16.8% for the quarter ended June 30, 2014. - 49 - -------------------------------------------------------------------------------- Total segment principal transaction revenues increased $0.5 million from $1.5 million for the quarter ended June 30, 2013 to $2.0 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 June 30, (In thousands) 2014 2013 Equity and other securities excluding non-controlling interest $ 494 $ 820 Warrants and other investments 35 331 Investment partnerships 1,448 324 Total Segment principal transaction revenues 1,977



1,475

Operating adjustment addbacks 728 (416 ) Non-controlling interest in HGC, HGC II and HCC LLC (through May 2, 2013) 6,983



1,233

Total principal transaction revenues $ 9,688 $ 2,292 The increase primarily reflects additional revenues from investment partnerships, partially offset by declines in equity and other securities and in warrants and other investments. Revenues from investment partnerships increased $1.1 million from $0.3 million for the quarter ended June 30, 2013 to $1.4 million for the quarter ended June 30, 2014. Revenues from equity and other securities decreased $0.3 million from $0.8 million for the quarter ended June 30, 2013 to $0.5 million for the same period in 2014. Revenues from warrants and other investments decreased by $0.3 million from $0.3 million for the quarter ended June 30, 2013 to $35 thousand for the quarter ended June 30, 2014. On an adjusted basis, as a percentage of total net revenues after provision for loan losses, principal transaction revenues were 3.9% for both the quarters ended June 30, 2013 and 2014.



Gain on Sale and Payoff of Loans

Gain on sale, payoff and mark-to-market of loans decreased $0.9 million, from $0.3 million for the quarter ended June 30, 2013 to a $0.6 million loss for the quarter ended June 30, 2014, respectively. At JMP Credit, during the quarter ended June 30, 2014, 84 loans were sold, paid off or were terminated, resulting in a total net loss of $0.6 million. $0.7 million of these losses were attributable to 31 loans which were sold at a discount to our carrying value. As a percentage of total net revenues after provision for loan losses, gain on sale, payoff and mark-to-market of loans decreased from 1.1% for the quarter ended June 30, 2013 to 1.0% for the quarter ended June 30, 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 Investment Income segment decreased $0.9 million, from $0.3 million for the quarter ended June 30, 2013 to a $0.6 million loss for the quarter ended June 30, 2014. Gain on sale, payoff and mark-to-market of loans decreased from 0.9% for the quarter ended June 30, 2013 to 1.1% for the quarter ended June 30, 2014 as a percentage of total segment adjusted net revenues. Net Dividend Income/Loss Net dividend income was $0.3 million and $0.1 million for the quarters ended June 30, 2014 and 2013, respectively. For the quarter ended June 30, 2014, net dividend income primarily related to dividends from our HCC investment. - 50 - --------------------------------------------------------------------------------

Net Interest Income/Expense (In thousands) Three Months Ended June 30, 2014 2013 CLO I loan contractual interest income $ 3,803 $



4,512

CLO I ABS issued contractual interest expense (1,153 ) (1,113 ) Net CLO I contractual interest 2,650



3,399

CLO II loan contractual interest income $ 3,740 $



1,324

CLO II ABS issued contractual interest expense (1,688 ) (1,248 ) Net CLO II contractual interest 2,052



76

CLO III loan contractual interest income $ 1,178 $

-

CLO III ABS issued contractual interest expense (341 )



-

Net CLO III contractual interest 837 - Bond Payable interest expense (1,901 ) (978 ) Other interest income 153 897 Total Segment net interest income $ 3,791 $



3,394

CLO I loan liquidity discount accretion -



65

CLO I ABS liquidity discount amortization - (6,304 ) Net CLO I liquidity discount amortization - (6,239 ) HCC LLC interest income - 607 HCC LLC interest expense - (156 ) Net HCC LLC interest income - 451 Other interest income adjustment (3 )



-

Total net interest income (expense) $ 3,788$ (2,394 ) Net interest income increased $6.2 million, or 258.2% from $2.4 million net interest expense for the quarter ended June 30, 2013 to $3.8 million net interest income for the quarter ended June 30, 2014. The net interest income increase was driven primarily by the CLO II interest earned in the quarter ended June 30, 2014. CLO II launched in the second 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 7.8% for the quarter ended June 30, 2013 and 6.6% for the quarter ended June 30, 2014. Total segment net interest income increased from $3.4 million for the quarter ended June 30, 2013 to $3.8 million for the quarter ended June 30, 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 8.9% for the quarter ended June 30, 2013 to 7.5% for the quarter ended June 30, 2014. 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 June 30, 2014 Average CLO Loan (CLO Weighted Spread to ABS Average Weighted Weighted Interest Income Issued) Contractual Average Average (Expense) Balance Interest Rate LIBOR LIBOR CLO I loan contractual interest income $ 3,803 $ 399,487 3.77 % 0.23 % 3.54 % CLO I ABS issued contractual interest expense (1,153 ) (416,744 ) 1.10 % 0.23 % 0.87 % CLO II loan contractual interest income 3,740 324,710 4.55 % 0.23 % 4.32 % CLO II ABS issued contractual interest expense (1,688 ) (319,298 ) 2.09 % 0.23 % 1.86 % CLO III loan contractual interest income 1,178 98,610 4.73 % 0.22 % 4.51 % CLO III ABS issued contractual interest expense (341 ) (83,058 ) 1.62 % 0.22 % 1.40 % Net CLO contractual interest $ 5,539 N/A N/A N/A N/A - 51 -

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(In thousands) Three Months Ended June 30, 2013 Average CLO Loan (CLO Weighted Spread to ABS Average Weighted Weighted Interest Income Issued) Contractual Average Average (Expense) Balance Interest Rate LIBOR LIBOR CLO I loan contractual interest income $ 4,512 $ 398,222 4.48 % 0.28 % 4.20 % CLO I ABS issued contractual interest expense (1,113 ) 431,003 1.02 % 0.28 % 0.74 % CLO II loan contractual interest income 1,324 117,870 4.44 % 0.41 % 4.03 % CLO II ABS issued contractual interest expense (1,248 ) 320,000 2.27 % 0.41 % 1.86 % Net CLO contractual interest $ 3,475 N/A N/A N/A N/A Provision for Loan Losses Provision for loan losses decreased $0.8 million, or 78.3%, from $1.0 million for the quarter ended June 30, 2013 to $0.2 million for the same period in 2014. As a percent of net revenues after provision for loan losses, provision for loan losses were 3.2% for the quarter ended June 30, 2013 and 0.4% for the quarter ended June 30, 2014. Total segment provision for loan losses decreased from $0.9 million for the quarter ended June 30, 2013 to a $0.2 million reversal for the quarter ended June 30, 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 1.1% and 0.3% for the quarters ended June 30, 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 $13.2 million, or 53.3%, from $24.8 million for the quarter ended June 30, 2013 to $38.0 million for the quarter ended June 30, 2014.



Employee payroll, taxes and benefits, and consultant fees were $9.0 million and $10.2 million for the quarters ended June 30, 2013 and 2014, respectively.

Performance-based bonus and commission increased $10.4 million from $14.2 million for the quarter ended June 30, 2013 to $24.6 million for the quarter ended June 30, 2014. The increase was primarily due to the increase in total net revenues after provision for loan losses from $30.9 million for the quarter ended June 30, 2013 to $57.5 million for the same period in 2014. Equity-based compensation was $1.6 million and $2.5 million for the quarters ended June 30, 2013 and 2014, respectively. The increase is primarily due to $0.8 million of expense related to RSUs issued in connection with the 2013 annual bonus and $0.2 million of expense related to stock options granted in the first quarter of 2014. Compensation and benefits as a percentage of revenues decreased from 80.2% of total net revenues after provision for loan losses for the quarter ended June 30, 2013 to 66.0% for the same period in 2014. Approximately $6.6 million of the unrealized gain at HGC, HGC II for the quarter ended June 30, 2014 and $0.6 million of the unrealized gain at HGC, HGC II and HCC for the quarter ended June 30, 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 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. The segment reported compensation and benefits increased $12.0 million from $24.8 million for the quarter ended June 30, 2013 to $36.8 million for the quarter ended June 30, 2014. As a percent of total segment net revenues, compensation and benefits were 65.5% and 72.7% for the quarters ended June 30, 2013 and 2014, respectively. Administration Administration expense decreased $2.2 million, from $4.0 million for the quarter ended June 30, 2013 to $1.8 million for the quarter ended June 30, 2014. The decrease primarily was attributed to a conference held in the first quarter of 2014 that was held in the second quarter in 2013. As a percentage of total net revenues after provision for loan losses, administration expense decreased from 13.0% for the quarter ended June 30, 2013 to 3.1% for the same period in 2014.



Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees decreased $0.2 million from $1.0 million for the quarter ended June 30, 2013 to $0.8 million for the same period in 2014. As a percentage of total net revenues after provision for loan losses, our brokerage, clearing and exchange fees decreased from 3.3% for the quarter ended June 30, 2013 to 1.4% for the same period in 2014. - 52 -

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Travel and Business Development

Travel and business development expense was $1.0 million for both the quarters ended June 30, 2013 and 2014. As a percentage of total net revenues after provision for loan losses, travel and business development expense decreased from 3.4% for the quarter ended June 30, 2013 to 1.7% for the same period in 2014.



Communications and Technology

Communications and technology expenses were $0.8 million and $0.9 million for the quarters ended June 30, 2013 and 2014, respectively. As a percentage of total net revenues after provision for loan losses, communications and technology expense decreased from 2.7% for the quarter ended June 30, 2013 to 1.6% for the same period in 2014. Professional Fees Professional fees were $0.8 million and $1.3 million for the quarters ended June 30, 2013 and 2014, respectively. As a percentage of total net revenues after provision for loan losses, professional fees decreased from 2.6% for the quarter ended June 30, 2013 to 2.2% for the same period in 2014. Other Expenses Other expenses increased $0.1 million from $1.3 million for the quarter ended June 30, 2013 to $1.4 million for the quarter ended June 30, 2014. As a percentage of total net revenues after provision for loan losses, other expenses were 4.1% and 2.5% for the quarters ended June 30, 2013 and 2014, respectively.



Net Income Attributable to Non-controlling Interest

Net income attributable to non-controlling interest increased from a $0.8 million loss for the quarter ended June 30, 2013 to $6.7 million income for the quarter ended June 30, 2014. Non-controlling interest for both the quarters ended June 30, 2013 and 2014 includes the interest of third parties in CLO I, CLO II, HCC LLC, HGC, HGC II, and HCAP Advisors, partially-owned subsidiaries consolidated in our financial statements.



Provision for Income Taxes

For the quarters ended June 30, 2013 and 2014, we recorded income tax benefit of $0.6 million and tax expense of $2.5 million, respectively. The effective tax rates for the quarters ended June 30, 2013 and 2014 were 21.20% and 19.82%, respectively. Our operating net income assumes a combined federal, state and local income tax rate of 38% for both quarters ended June 30, 2013 and 2014. Segment income tax expense increased $0.5 million from $2.0 million for the quarter ended June 30, 2013 to $2.5 million for the quarter ended June 30, 2014.



Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Revenues Investment Banking Investment banking revenues increased $14.9 million, or 45.1%, from $33.2 million for the six months ended June 30, 2013 to $48.1 million for the same period in 2014. As a percentage of total net revenues after provision for loan losses, investment banking revenues decreased from 61.2% for the six months ended June 30, 2013 to 50.6% for the six months ended June 30, 2014. Our segment reported investment banking revenues, earned in our Broker-Dealer segment, increased $14.9 million from $33.2 million for the six months ended June 30, 2013 to $48.1 million for the same period in 2014. Public equity underwriting revenues increased $15.8 million, or 85.8%, from $18.4 million for the six months ended June 30, 2013 to $34.2 million for the six months ended June 30, 2014. We executed 70 and 67 public equity underwriting transactions in the six months ended June 30, 2013 and June 30, 2014, respectively. We acted as a lead manager on 14 transactions in the six months ended June 30, 2014 compared to 16 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 $5.0 million, or 95.2%, from $5.2 million for the six months ended June 30, 2013 to $10.2 million for the six months ended June 30, 2014. We executed 11 strategic advisory transactions in the six months ended June 30, 2014, compared to five in the same period in 2013. Our debt and convertible revenues decreased $3.9 million from $6.5 million for the six months ended June 30, 2013 to $2.7 million for the same period in 2014. We executed 11 debt and convertible transactions in the six months ended June 30, 2014 compared to 18 in the same period in 2013. Private capital markets and other transaction revenues decreased $2.0 million, or 65.6%, from $3.0 million for the six months ended June 30, 2013 to $1.0 million for the same period in 2014. We executed one transaction related to private capital markets and other transactions in the six months ended June 30, 2014 compared to two in the same period in 2013. Brokerage Revenues Brokerage revenues earned in our Broker-Dealer segment increased $0.9 million, or 7.9%, from $12.2 million for the six months ended June 30, 2013 to $13.1 million for the six months ended June 30, 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 22.5% for the six months ended June 30, 2013 to 13.8% for the six months ended June 30, 2014. On an adjusted basis, brokerage revenues were 13.9% and 17.4% for the six months ended June 30, 2013 and 2014, respectively, as a percentage of adjusted net revenue after provision for loan losses. - 53 -

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Asset Management Fees (In thousands) Six Months Ended June 30, 2014 2013 Base management fees: Fees reported as asset management fees $ 6,147 $ 5,055 Fees earned at HGC, HGC II and HCC LLC 746 964 Total base management fees 6,893 6,019 Incentive fees: Fees reported as asset management fees $ 14,255 $ 5,223 Fees earned at HGC, HGC II and HCC LLC - 417 Total incentive fees 14,255 5,640 Other fee income: Fundraising and other income: $ 372 $ 314 Total other fee income 372 314 Asset management related fees: Fees reported as asset management fees $ 20,402$ 10,278 Fees reported as other income 372 314 Fees earned at HGC, HGC II and HCC LLC 746



1,381

Total Segment asset management related fee revenues $ 21,520$ 11,973 Consolidation adjustment (746 ) (1,381 )



Adjusted total asset management related fees: $ 20,774$ 10,592

Fees reported as asset management fees were $10.3 million and $20.4 million for the six months ended June 30, 2013 and 2014, respectively. As a percentage of total net revenues after provision for loan losses, asset management revenues increased from 19.0% for the six months ended June 30, 2013 to 21.4% for the six months ended June 30, 2014. Fees reported as other income increased $0.1 million, or 18.5% from $0.3 million for the six months ended June 30, 2013 to $0.4 million for the six months ended June 30, 2014. As a percentage of total net revenues after provision for loan losses, other income decreased from 0.6% for the six months ended June 30, 2013 to 0.4% for the same period in 2014. 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 increased $9.5 million from $12.0 million for the six months ended June 30, 2013 to $21.5 million for the six months ended June 30, 2014. The increase primarily was attributed to the $8.7 million increase in incentive fees from $5.6 million for the six months ended June 30, 2013 to $14.3 million for the same period in 2014. The increase in incentive fees was driven by an increase of $9.2 million related to HSCP. Total base management fee increased $0.9 million from $6.0 million for the six months ended June 30, 2013 to $6.9 million for the same period in 2014. The increase was driven by increases of $0.7 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 17.1% and 22.8% for the six months ended June 30, 2013 and 2014, respectively, as a percentage of adjusted net revenues after provision for loan losses. Principal Transactions Principal transaction revenues increased $1.8 million from $4.2 million for the six months ended June 30, 2013 to $6.0 million for the same period in 2014. As a percentage of total net revenues after provision for loan losses, principal transaction revenues were 7.8% for the six months ended June 30, 2013 and 6.3% for the quarter ended June 30, 2014. - 54 -

-------------------------------------------------------------------------------- Total segment principal transaction revenues were $3.7 million for both the six months ended June 30, 2013 and 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. (In thousands) Six Months Ended June 30, 2014 2013 Equity and other securities excluding non-controlling interest $ 1,337 $



1,461

Warrants and other investments 10



680

Investment partnerships 2,320



1,523

Total Segment principal transaction revenues 3,667



3,664

Operating adjustment addbacks 623 (108 ) Non-controlling interest in HGC, HGC II and HCC LLC (through May 2, 2013) 1,705



653

Total principal transaction revenues $ 5,995 $ 4,209 The increase primarily reflects additional revenue from investment partnerships, partially offset by decreases in warrants and other investments and equity and other securities. Revenues from investment partnerships increased $0.8 million from $1.5 million for the six months ended June 30, 2013 to $2.3 million for the six months ended June 30, 2014. Revenues from warrants and other investments decreased by $0.7 million from $0.7 million for the six months ended June 30, 2013. Revenues from equity and other securities decreased $0.2 million from $1.5 million for the six months ended June 30, 2013 to $1.3 million for the same period in 2014. On an adjusted basis, as a percentage of total net revenues after provision for loan losses, principal transaction revenues decreased from 5.2% for the six months ended June 30, 2013 to 3.9% for the six months ended June 30, 2014.



Gain on Sale and Payoff of Loans

Gain on sale, payoff and mark-to-market of loans decreased $1.6 million, from $1.4 million for the six months ended June 30, 2013 to a $0.2 million loss for the six months ended June 30, 2014, respectively. At JMP Credit, during the six months ended June 30, 2014, 126 loans were sold, paid off or were terminated, resulting in a total net loss of $0.2 million. $1.1 million of the loss related to 58 loans, 37 of which were sold at a discount to our carrying value. The losses were partially offset by $0.4 million related to three terminated commitments, $0.4 million relating to loan payoffs, where the borrowers repaid the loans at a premium to our carrying value, and $0.1 million relating to loans sold at a premium. As a percentage of total net revenues after provision for loan losses, gain on sale, payoff and mark-to-market of loans decreased from 2.6% for the six months ended June 30, 2013 to 0.2% for the six months ended June 30, 2014. Gain on sale, payoff and mark-to-market of loans was earned in our Investment Income 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 Investment Income segment decreased $1.5 million, from $1.3 million for the six months ended June 30, 2013 to a $0.2 million loss for the six months ended June 30, 2014. Gain on sale, payoff and mark-to-market of loans decreased from 1.9% for the six months ended June 30, 2013 to 0.2% for the six months ended June 30, 2014 as a percentage of total segment adjusted net revenues. Net Dividend Income/Loss Net dividend income was $0.5 million and $0.1 million for the six months ended June 30, 2014 and June 30, 2013, respectively. For the six months ended June 30, 2014, net dividend income primarily related to dividends from our HCC investment. - 55 -

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Net Interest Income/Expense (In thousands) Six Months Ended June 30, 2014 2013 CLO I loan contractual interest income $ 7,816 $



9,543

CLO I ABS issued contractual interest expense (2,303 ) (2,233 ) Net CLO I contractual interest 5,513



7,310

CLO II loan contractual interest income $ 7,447 $



1,324

CLO II ABS issued contractual interest expense (3,368 ) (1,248 ) Net CLO II contractual interest 4,079



76

CLO III loan contractual interest income $ 1,439 $

-

CLO III ABS issued contractual interest expense (380 )



-

Net CLO III contractual interest 1,059 - Bond Payable interest expense (3,485 ) (1,644 ) Other interest income 402 1,941 Total Segment net interest income $ 7,568 $



7,683

CLO I loan liquidity discount accretion -



569

CLO I ABS liquidity discount amortization - (15,548 ) Net CLO I liquidity discount amortization - (14,979 ) HCC LLC interest income - 2,393 HCC LLC interest expense - (632 ) Net HCC LLC interest income - 1,761 Other interest income adjustment (20 )



-

Total net interest income (expense) $ 7,548$ (5,535 ) Net interest income increased $13.0 million, or 236.4% from $5.5 million net interest expense for the six months ended June 30, 2013 to $7.5 million net interest income for the six months ended June 30, 2014. The net interest income increase was driven primarily by the CLO I liquidity discount amortization included in the six months ended June 30, 2013 and the CLO II interest earned in the six months ended June 30, 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 10.2% for the six months ended June 30, 2013 and 7.9% for the six months ended June 30, 2014. Total segment net interest income decreased from $7.7 million for the six months ended June 30, 2013 to $7.6 million for the six months ended June 30, 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 11.0% for the six months ended June 30, 2013 to 8.0% for the six months ended June 30, 2014. - 56 -

-------------------------------------------------------------------------------- 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) Six Months Ended June 30, 2014 Average CLO Loan (CLO Weighted Spread to ABS Average Weighted Weighted Interest Income Issued) Contractual Average Average (Expense) Balance Interest Rate LIBOR LIBOR CLO I loan contractual interest income $ 7,816 $ 402,367 3.86 % 0.23 % 3.63 % CLO I ABS issued contractual interest expense (2,303 ) (415,255 ) 1.10 % 0.23 % 0.87 % CLO II loan contractual interest income 7,447 325,790 4.56 % 0.23 % 4.33 % CLO II ABS issued contractual interest expense (3,368 ) (319,488 ) 2.09 % 0.23 % 1.86 % CLO III loan contractual interest income 1,439 61,096 4.68 % 0.14 % 4.54 % CLO III ABS issued contractual interest expense (380 ) (46,583 ) 1.12 % 0.14 % 0.98 % Net CLO contractual interest $ 10,651 N/A N/A N/A N/A (In thousands) Six Months Ended June 30, 2013 Average CLO Loan (CLO Weighted Spread to ABS Average Weighted Weighted Interest Income Issued) Contractual Average Average (Expense) Balance Interest Rate LIBOR LIBOR CLO I loan contractual interest income $ 9,543 $ 404,708 4.64 % 0.29 % 4.35 % CLO I ABS issued contractual interest expense (2,233 ) (431,003 ) 1.03 % 0.29 % 0.74 % CLO II loan contractual interest income 1,324 59,261 4.44 % 0.41 % 4.03 % CLO II ABS issued contractual interest expense (1,248 ) (320,000 ) 2.27 % 0.41 % 1.86 % Net CLO contractual interest $ 7,386 N/A N/A N/A N/A Provision for Loan Losses Provision for loan losses decreased $1.2 million, or 63.1%, from $1.9 million for the six months ended June 30, 2013 to $0.7 million for the same period in 2014. As a percent of net revenues after provision for loan losses, provision for loan losses decreased from 3.6% for the six months ended June 30, 2013 and 0.7% for the six months ended June 30, 2014. Total segment provision for loan losses decreased from $0.8 million for the six months ended June 30, 2013 to a $0.2 million reversal for the six months ended June 30, 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 1.1% and 0.2% for the six months ended June 30, 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 $25.0 million, or 56.3%, from $44.4 million for the six months ended June 30, 2013 to $69.4 million for the six months ended June 30, 2014.



Employee payroll, taxes and benefits, and consultant fees were $18.6 million and $19.9 million for the six months ended June 30, 2013 and 2014, respectively.

Performance-based bonus and commission increased $21.8 million from $23.2 million for the six months ended June 30, 2013 to $45.0 million for the six months ended June 30, 2014. The increase was primarily due to the increase in total net revenues after provision for loan losses from $54.2 million for the six months ended June 30, 2013 to $95.2 million for the same period in 2014. Equity-based compensation was $2.6 million and $4.5 million for the six months ended June 30, 2013 and 2014, respectively. The increase is primarily due to $1.2 million and $0.3 million of expense related to RSUs issued in connection with the 2013 annual bonus and RSUs issued to certain new employees, respectively, and $0.4 million of expense related to stock options granted in the first quarter of 2014. Compensation and benefits as a percentage of revenues decreased from 82.0% of total net revenues after provision for loan losses for the six months ended June 30, 2013 to 72.9% for the same period in 2014. Approximately $0.8 million of the unrealized gain at HGC and HGC II for the six months ended June 30, 2014 and $0.6 million of the unrealized loss at HGC and HGC II for the six months ended June 30, 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 periods. Our segment reported compensation and benefits 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. The segment reported compensation and benefits increased $22.6 from $44.8 million for the six months ended June 30, 2013 to $67.4 million for the six months ended June 30, 2014. As a percent of total segment net revenues, compensation and benefits were 64.0% and 71.3% for the six months ended June 30, 2013 and 2014, respectively. - 57 -

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Administration Administration expense decreased $1.8 million, from $5.3 million for the six months ended June 30, 2013 to $3.5 million for the six months ended June 30, 2014. The decrease was attributed to $2.5 million expense paid by HCAP Advisors to underwriters in connection with an agreement with HCC in the six months ended June 30, 2013. As a percentage of total net revenues after provision for loan losses, administration expense decreased from 9.9% for the six months ended June 30, 2013 to 3.7% for the same period in 2014.



Brokerage, Clearing and Exchange Fees

Brokerage, clearing and exchange fees were $1.9 million and $1.7 million for the six months ended June 30, 2013 and 2014, respectively. As a percentage of total net revenues after provision for loan losses, our brokerage, clearing and exchange fees decreased from 3.5% for the six months ended June 30, 2013 to 1.8% for the same period in 2014.



Travel and Business Development

Travel and business development expense decreased from $2.0 million for the six months ended June 30, 2013 to $1.8 million for the six months ended June 30, 2014. As a percentage of total net revenues after provision for loan losses, travel and business development expense decreased from 3.7% for the six months ended June 30, 2013 to 1.9% for the same period in 2014.



Communications and Technology

Communications and technology expenses increased $0.2 million from $1.7 million for the six months ended June 30, 2013 to $1.9 million for the same period in 2014. As a percentage of total net revenues after provision for loan losses, communications and technology expense decreased from 3.1% for the six months ended June 30, 2013 to 2.0% for the same period in 2014. Professional Fees Professional fees increased $0.3 million, from $1.8 million or the six months ended June 30, 2013 to $2.1 million for the same period in 2014. As a percentage of total net revenues after provision for loan losses, professional fees decreased from 3.4% for the six months ended June 30, 2013 to 2.2% for the same period in 2014. Other Expenses Other expenses increased $0.3 million, from $2.4 million for the six months ended June 30, 2013 to $2.7 million for the six months ended June 30, 2014. As a percentage of total net revenues after provision for loan losses, other expenses were 4.4% and 2.8% for the six months ended June 30, 2013 and 2014, respectively.



Net Income Attributable to Non-controlling Interest

Net income attributable to non-controlling interest increased from a $0.8 million loss for the six months ended June 30, 2013 to $0.8 million income for the six months ended June 30, 2014. Non-controlling interest for the six months ended June 30, 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 six months ended June 30, 2013 also includes the interest of third parties in HCC LLC, partially-owned subsidiaries consolidated in our financial statements. Provision for Income Taxes For the six months ended June 30, 2013 and 2014, we recorded income tax benefit of $1.5 million and tax expense of $4.1 million, respectively. The effective tax rates for the six months ended June 30, 2013 and 2014 were 26.72% and 34.18%, 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 the six months ended June 30, 2013 and 2014. Segment income tax expense increased $1.0 million from $4.2 million for the six months ended June 30, 2013 to $5.2 million for the six months ended June 30, 2014.



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 six months ended June 30, 2014 to demonstrate where our capital is invested and the financial condition of the Company.

Overview As of June 30, 2014, we had net liquid assets of $26.3 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 June 30, 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 $115.4 million and $112.1 million, respectively, which represented 9.2% and 10.0% of total assets, respectively. Level 3 assets increased by $3.3 million, due to the purchases of $4.6 million, unrealized gain of $1.6 million, partially offset by the sales and settlements of $2.6 million. - 58 -

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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 June 30, 2014, we had $815.7 million of loans collateralizing asset-backed securities, net, $60.7 million of restricted cash and $1.7 million of interest receivable funded by $710.1 million of asset-backed securities issued, net, and interest payable of $1.9 million. These assets and liabilities represented 70.3% of total assets and 70.7% of total liabilities respectively, reported on our Consolidated Statement of Financial Condition at June 30, 2014.



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 June 30, 2014.

(Dollars in thousands) As of June 30, 2014 Range of Outstanding Balance Number of Loans Maturity Date Total Principal $0 - $500 38 11/2015 - 6/2021 $ 15,546 $500 - $2,000 106 12/2014 - 5/2021 310,632 $2,000 - $5,000 12 4/2016 - 12/2020 82,695 $5,000 - $10,000 289 1/2015 - 2/2022 384,856 $10,001+ 3 5/2016 - 2/2019 32,250 Total 448

$ 825,979 - 59 -

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(Dollars in thousands) As of June 30, 2014 Industry Number of Outstanding % of Outstanding Loans Balance Balance Healthcare, Education & Childcare 35 $ 83,994 10.2% High Tech Industries 32 56,098 6.8% Hotels, Motels, Inns and Gaming 27 52,113 6.3% Retail Store 24 41,480 5.0% Chemicals, Plastics and Rubber 15 40,775 4.9% Beverage, Food & Tobacco 20 39,268 4.8% Services: Business 26 38,990 4.7% Automobile 17 36,237 4.4% Services: Consumer 14 34,119 4.1% Banking, Finance, Insurance & Real Estate 19 33,438 4.0% Utilities 12 29,681 3.6% Telecommunications 18 26,252 3.2% Diversified/Conglomerate Service 16 25,847 3.1% Electronics 12 25,712 3.1% Aerospace & Defense 13 18,874 2.3% Leisure , Amusement, Motion Pictures & 8 17,032 2.1%



Entertainment

Media: Broadcasting & Subscription 9 15,918 1.9% Construction & Building 8 14,393 1.7% Capital Equipment 9 13,978 1.7% Metals & Mining 7 13,388 1.6% Media: Diversified & Production 6 12,606 1.5% Personal, Food & Misc Services 8 11,930 1.4% Personal &Non-Durable Consumer Products 6 11,726 1.4% Consumer Goods: Durable 9 10,836 1.3% Broadcasting & Entertainmt. 3 10,644 1.3% Containers, Packaging and Glass 7 10,563 1.3% Environmental Industries 7 8,641 1.0% Finance 4 8,434 1.0% Printing & Publishing 3 7,845 0.9% Energy: Electricity 5 7,820 0.9% Diversified/Conglomerate Mfg 8 6,113 0.7% Transportation: Consumer 3 6,112 0.7% Consumer Goods: Non-durable 4 5,995 0.7% Home and Office Furnishings, Housewares 2 5,601 0.7% and Durable Consumer Products Forest Products & Paper 4 5,414 0.7% Ecological 5 5,382 0.7% Insurance 2 4,622 0.6% Energy: Oil & Gas 4 4,064 0.5% Textiles & Leather 2 3,798 0.5% Transportation: Cargo 2 3,478 0.4% Personal Transportation 2 2,982 0.4% Grocery 2 2,656 0.4% Advertising, Printing & Publishing 2 2,498 0.4% Cargo Transport 1 2,207 0.3% Diversified Natural Resources, Precious 1 1,610 0.2% Metals and Minerals Farming & Agriculture 1 1,474 0.2% Media, Advertising, Printing & Publishing 1 998 0.1% Wholesale 1 998 0.1%



Machinery

(Non-Agriculture,Non-Construction & 1 858 0.1%



Non-Electronic)

Personal and Non-Durable Consumer Products 1 487 0.1% (mfg only) 448 825,979 100% - 60 -

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(Dollars in thousands) As of June 30, 2014 Moody's Rating Category Number of Outstanding % of Outstanding Loans Balance Balance Baa2 1 $ 2,000 0.2% Baa3 2 13,056 1.6% Ba1 8 21,987 2.7% Ba2 29 60,986 7.4% Ba3 62 146,201 17.8% B1 114 222,530 26.9% B2 178 278,522 33.7% B3 48 72,554 8.8% Ca 1 394 0.0% Caa1 3 4,251 0.5% Caa2 2 3,498 0.4% Total 448 $ 825,979 100%



Other Liquidity Considerations

As of June 30, 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"), or JMP Securities. We have $0.7 million outstanding on the revolving line of credit of our wholly-owned subsidiary, or HGC II, 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. Prior to April 30, 2014, a credit agreement (the "Credit Agreement") with City National Bank ("CNB") provided a line of credit of up to $30.0 million to the extent the aggregate outstanding balance of all facilities did not exceed $58.5 million. The unused portion of the line incurred an unused facility fee at the rate of 0.25% per annum, paid quarterly. The line of credit was available through April 30, 2014. 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. The Company's outstanding balance on this line of credit was zero as of both June 30, 2014 and December 31, 2013. Pursuant to the Credit Agreement, on April 25, 2013, JMP Group drew $15.0 million on a term loan. This term loan was to be repaid in quarterly installments of $1.2 million beginning March 31, 2014, with a final payment of approximately $1.3 million on December 31, 2016. The outstanding balance on this term loan was $15.0 million as of December 31, 2013. The Company paid the balance of the term loan in the first quarter of 2014. 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 June 30, 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 held a subordinated revolving line of credit with CNB (the "Broker/Deal Line of Credit") to be used for regulatory capital purposes during its securities underwriting activities. The unused portion of the line bears interest at the rate of 0.25% per annum, paid monthly. Pursuant to the Amendment, the prior $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 prior line of credit. There was no borrowing on this line of credit as of June 30, 2014 or December 31, 2013. - 61 -

-------------------------------------------------------------------------------- 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 $0.7 million outstanding on this line of credit as of June 30, 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. In March 2014, the Company's board of directors declared a quarterly cash dividend of $0.045 per share of common stock, paid in April 2014 for the fourth quarter of 2013. In April 2014, the Company's board of directors declared a quarterly cash dividend of $0.050 per share of common stock, paid in May 2014 for the first quarter of 2014. During the six months ended June 30, 2014, the Company repurchased 205,912 shares of the Company's common stock at an average price of $6.47 per share, for an aggregate purchase price of $1.3 million. 20,915 of these repurchased shares 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 $97.2 million comprised primarily of $71.0 million of restricted cash at JMP Credit on June 30, 2014. This balance was comprised of $10.6 million in interest received from loans in CLO I, and $60.4 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 $44.3 million and $59.1 million, which were $43.3 million and $58.1 million in excess of the required net capital of $1.0 million at June 30, 2014 and December 31, 2013, respectively. JMP Securities' ratio of aggregate indebtedness to net capital was 0.22 to 1 and 0.16 to 1 at June 30, 2014 and December 31, 2013, respectively.



A condensed table of cash flows for the six months ended June 30, 2014 and 2013 is presented below.


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Source: Edgar Glimpses


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