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, refer to the MD&A for the fiscal year ended December 31, 2008 contained in our annual report on Form 10-K filed with the SEC on March 9, 2009, 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 annual report on Form 10-K. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our Annual report on Form 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

We are a full-service investment banking and asset management firm headquartered in San Francisco. 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 six target industries; and

• asset management products and services to institutional investors, high net-worth individuals and for our own account.

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, and asset management fees in our asset management business. 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 placements 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 and selling concessions. 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 valuation analyses. We record strategic advisory revenues when the transactions or the services (or, if applicable, separate components thereof) to be performed are substantially complete, the fees are determinable and collection is reasonably assured.

Private Placement Revenues

We earn agency placement fees in non-underwritten transactions such as private placements of equity securities, private investments in public equity ("PIPE"), 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, or 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, these 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 include base management fees and incentive fees earned from managing investment partnerships sponsored by us and investment accounts owned by clients. Base management fees earned by us are generally based on the fair value of assets under management and the fee schedule for each fund and account. We also earn incentive fees that are based upon the performance of investment funds and accounts. Such fees are based on a percentage of the excess of an investment return over a specified highwater mark or hurdle rate over a defined performance period.

As of March 31, 2009, the contractual base management fees earned from each of these investment funds ranged between 1% and 2% of assets under management. 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 funds of funds; and (iii) 25%, subject to a performance hurdle rate, for HMOP and NYMT.

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.

The following table presents certain information with respect to the investment funds managed by Harvest Capital Strategies ("HCS") (formerly JMP Asset Management LLC, which changed its name to HCS effective September 29, 2008):

                                              Net Assets at              Company's Share of Net Assets at
                                        March 31,     December 31,        March 31,          December 31,
                                          2009            2008              2009                 2008
Funds Managed by HCS:
Hedge Funds:
Harvest Opportunity Partners II       $  54,568,980   $  62,169,209   $       7,761,854    $       7,760,076
Harvest Small Cap Partners              306,014,098     234,051,639          14,859,315           13,780,667
Harvest Consumer Partners                 6,191,257       5,521,880           2,633,104            2,407,121
Harvest Technology Partners              13,781,089      11,581,561           6,527,090            5,818,212
Harvest Mortgage Opportunities
Partners (1)                             12,418,315              -            8,238,753                   -
Funds of Funds:
JMP Masters Fund                         93,385,177      96,037,447           2,707,880            2,701,021
JMP Emerging Masters Fund                10,925,178      10,633,335           1,001,370              977,052
REITs:
JMP Realty Trust (1)                             -       15,829,296                  -             7,841,833
New York Mortgage Trust (2)              48,413,824      48,413,824                 N/A                  N/A

Total funds managed by HCS            $ 545,697,918   $ 484,238,191   $      43,729,366    $      41,285,982

(1) The Company's share of net assets in JMPRT were consolidated in the Company's Statement of Financial Condition at December 31, 2008. On January 2, 2009 all of the assets and liabilities of JMPRT were transferred to HMOP which was not required to be consolidated for the first quarter of 2009.

(2) The portion of the net assets of New York Mortgage Trust, Inc. ("NYMT") that is subject to the management fee calculation. In connection with its investment in NYMT, in January 2008, the Company entered into an advisory agreement between HCS and NYMT.

                                                             Three Months Ended March 31, 2009
                                              Company's Share of                                       HCS
                                             Change in Fair Value        HCS Management Fee       Incentive Fee
Hedge Funds:
Harvest Opportunity Partners II             $                35,663     $            159,296     $           369
Harvest Small Cap Partners                                1,557,792                1,299,785           6,421,805
Harvest Consumer Partners                                   206,604                    7,701              20,843
Harvest Technology Partners                                 659,284                   15,389              71,262
Harvest Mortgage Opportunities Partners                     413,681                   59,312                  -
Funds of Funds:
JMP Masters Fund                                              6,858                  219,872                  -
JMP Emerging Masters Fund                                    24,318                   24,030                  -
REITs:
New York Mortgage Trust                                   1,192,438                  181,552                  -

Totals                                      $             4,096,638     $          1,966,937     $     6,514,279

                                                         Three Months Ended March 31, 2008
                                         Company's Share of                                        HCS
                                        Change in Fair Value         HCS Management Fee       Incentive Fee
Hedge Funds:
Harvest Opportunity Partners II        $              193,895       $            174,629     $        38,775
Harvest Small Cap Partners                          1,606,429                    356,423           1,659,315
Harvest Consumer Partners (1)                          76,259                      5,534               2,010
Harvest Technology Partners (1)                         1,756                      6,925                  63
Funds of Funds:
JMP Masters Fund                                       34,224                    284,708              30,823
JMP Emerging Masters Fund                               2,956                     26,948               9,147
REITs:
JMP Realty Trust (1)                                 (153,409 )                   69,386                  -
New York Mortgage Trust                            (1,730,589 )                  109,167                  -

Totals                                 $               31,521       $          1,033,720     $     1,740,133

(1) Revenues earned from HTP, HCP and JMPRT are consolidated and then eliminated in consolidation in the Company's Statements of Operations, net of noncontrolling interest.

Principal Transactions

Principal transaction revenues includes realized and unrealized net gains and losses resulting from our principal investments, which includes 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.

Interest, Dividends and Other Income

Interest and dividends income includes interest and dividend income generated by our cash, investments and notes receivable. Other income includes fee sharing arrangements with, and fees earned to raise capital for third-party investment partnerships, or funds.

Components of Expenses

We classify our expenses as compensation and benefits, administration, brokerage, clearing and exchange fees, interest and dividend expense, loan loss provision and other expenses. A significant portion of our expense base is variable, including compensation and benefits, brokerage and clearance, communication and technology and travel and business development 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 currently clear our securities transactions through Ridge Clearing. Changes in brokerage, clearing and exchange fees fluctuate largely in line with the volume of sales and trading activity.

Interest and Dividend Expense

Interest and dividend expense includes interest expense from borrowings under our credit facility and dividend expense for paying short positions in our principal investment portfolio.

Loss Provision on Loans Receivable

Loss provision on loans receivable includes reserves recognized on our loan notes and non-revolving credit agreements (collectively loan receivables) to record these principal investments at their net realizable value.

Other Expenses

Other operating expenses primarily include travel and business development, market data, occupancy, legal and accounting professional fees, depreciation and loan loss provision.

Noncontrolling interest

Noncontrolling interest for the three months ended March 31, 2009 relates to the interest of third parties in Opportunity Acquisition Corp. (SPAC), a partially owned subsidiary consolidated on our books. Noncontrolling interest for the three months ended March 31, 2008 relates to the interest of third parties in SPAC, JMP Realty Trust (JMPRT), and in two of our asset management funds, Harvest Consumer Partners (HCP) and Harvest Technology Partners (HTP). JMPRT was a real estate investment trust that was formed in June 2006. Because of the ownership and external management position, we consolidated JMP Realty Trust and recorded a noncontrolling interest through December 31, 2008. On January 2, 2009, all of the assets and liabilities of JMPRT were transferred to Harvest Mortgage Opportunities Partners ("HMOP"), a newly-formed hedge fund managed by HCS. The partnership agreements for HMOP provide for the right of the limited partners to remove the general partners by a simple majority vote of the unaffiliated limited partners. This right satisfies all of the criteria enumerated in paragraph 7.b. of Emerging Issues Task Force Issue No. 04-5 ("EITF 04-5"), Determining whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, as described above. As a result of these substantive kick-out rights, consolidation of HMOP is not required as of January 2, 2009. In connection with the above reorganization, the Company deconsolidated JMPRT effective January 1, 2009.

HCS is also the general partner of Harvest Consumer Partners and Harvest Technology Partners. As of December 31, 2007 and during part of 2008 due to our ownership and resulting control by HCS and related parties, management believes that limited partners did not have substantive rights to remove the general partner, and, therefore, these two funds were consolidated in the financial statements and noncontrolling interest was recorded. During 2008, additional limited partners invested in HTP and HCP, and effective August 1, 2008 for HTP and December 1, 2008 for HCP, the limited partners had substantive rights to remove the general partner and the funds were deconsolidated as of the respective dates.

Results of Operations

The following table sets forth our results of operations for the three month
periods ended March 31, 2009 and 2008 and is not necessarily indicative of the
results to be expected for any future period.



                                               Three Months Ended March 31,             2009 to 2008
                                                 2009               2008               $            %
(in thousands)
Revenues
Investment banking                          $         4,116    $         8,107      $ (3,991 )     -49.2 %
Brokerage                                             8,539              8,142           397         4.9 %
Asset management fees                                 8,466              2,742         5,724       208.8 %
Principal transactions                                2,890             (1,380 )       4,270         N/A
Interest, dividends and other income                  1,013              2,141        (1,128 )     -52.7 %

Total revenues                                       25,024             19,752         5,272        26.7 %
Expenses
Compensation and benefits                            18,801             12,589         6,212        49.3 %
Administration                                        1,121              1,281          (160 )     -12.5 %
Brokerage, clearing and exchange fees                 1,250              1,373          (123 )      -9.0 %
Interest and dividend expense                           102                216          (114 )     -52.8 %
Loan loss provision                                     725                 -            725         N/A
Other                                                 2,938              3,830          (892 )     -23.3 %

Total expenses                                       24,937             19,289         5,648        29.3 %

Income before income tax expense
(benefit)                                                87                463          (376 )     -81.2 %
Income tax expense (benefit)                             52               (160 )         212      -132.9 %

Net income                                               35                623          (588 )     -94.4 %
Less: Net income (loss) attributable to
the noncontrolling interest                               1                (56 )          57      -100.9 %

Net income attributable to JMP Group
Inc.                                        $            34    $           679      $   (645 )     -95.0 %

Three Months Ended March 31, 2009, Compared to Three Months Ended March 31, 2008

Overview

Total revenues increased $5.3 million, or 26.7%, from $19.8 million for the quarter ended March 31, 2008 to $25.0 million for the quarter ended March 31, 2009. The increase was primarily due to an increase in asset management revenues of $5.7 million and principal transaction revenues of $4.3 million, partially offset by a decrease in investment banking revenue of $4.0 million and interest, dividends and other income of $1.1 million.

Total expenses increased by $5.6 million, or 29.3%, from $19.3 million for the quarter ended March 31, 2008 to $24.9 million for the quarter ended March 31, 2009, primarily due to an increase in compensation and benefits of $6.2 million.

Net income decreased $0.6 million from net income of $0.7 million for the quarter ended March 31, 2008 to net income of $34 thousand for the quarter ended March 31, 2009, and includes $0.2 million increase in income tax expense from tax benefit of $160 thousand for the quarter ended March 31, 2008 to tax expense of $52 thousand for the quarter ended March 31, 2009.

Revenues

Investment Banking

Investment banking revenues decreased $4.0 million, or 49.2%, from $8.1 million for the quarter ended March 31, 2008 to $4.1 million for the same period in 2009, and decreased as a percentage of total revenues from 41.0% to 16.4%, respectively. The decrease in revenues reflects a lower level of activity in our public equity underwriting and private placement business, partially offset by increased activity in our strategic advisory businesses. Public equity underwriting revenues decreased by $1.4 million, or 56.7%, from $2.5 million for the quarter ended March 31, 2008 to $1.1 million for the quarter ended March 31, 2009. The decrease is primarily due to the continued low levels of new equity issuances by U.S. companies during the period, starting from the second quarter of 2008. We executed two public equity underwriting transactions in the quarter ended March 31, 2009 compared to four in the quarter ended March 31, 2008. We did not act as a lead manager on a transaction in either period. Private placement revenues decreased $3.3 million, or 90.9%, from $3.6 million for the quarter ended March 31, 2008 to $0.3 million for the quarter ended March 31, 2009 due to fewer private placement transactions executed. Our strategic advisory revenues increased $0.7 million, or 34.0%, from $2.0 million for the quarter ended March 31, 2008 to $2.7 million for the quarter ended March 31, 2009, due to a higher number of transactions executed. We executed three strategic advisory transactions in the quarter ended March 31, 2009 compared to two in the quarter ended March 31, 2008.

On February 13, 2009, we entered into a business arrangement with China Merchants Securities Co.(HK), Ltd., one of China's largest securities brokerage and investment banking firms, through a $2 million investment in HuaMei Capital Company, Inc. (HuaMei) to expand our investment banking capabilities in China. Through HuaMei, we can provide investment banking services to U.S. and Chinese companies seeking to execute cross-border transactions on both sides of the Pacific.

Brokerage Revenues

Brokerage revenues increased by $0.4 million, or 4.9%, from $8.1 million for the quarter ended March 31, 2008 to $8.5 million for the quarter ended March 31, 2009. The increase was the result of higher net margins on trading commissions, partially offset by lower gross commissions, which relates to a decrease in overall average daily volume in the markets in which we transact. Overall average daily volume in the NYSE and Nasdaq Composite Indices combined was down 7.7% from the first quarter 2008 to the first quarter 2009. Brokerage revenues . . .