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, 2011 contained in our Annual Report on Form 10-K (the "2011 10-K") filed with the SEC on March 12, 2012, 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 2011 10-K. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our 2011 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;

• management of collateralized loan obligations; and

• small business lending.

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 in our asset management business and interest income on collateralized loan obligations and small business lending 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.

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 and Harvest Capital Credit LLC ("HCC") include base management fees and incentive fees earned from managing investment partnerships sponsored by us. 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 highwater 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.

As of June 30, 2012, the contractual base management fees earned from each of these investment funds 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 highwater marks, for the hedge funds; (ii) 5% to 20%, subject to high-water marks or a performance hurdle rate, for the funds of funds; (iii) 20%, subject to high-water marks, for Harvest Growth Capital LLC ("HGC"). 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 HCC and HGC, the management fees earned at HCS from HCC and HGC are eliminated on 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 Cratos CLO, the management fees earned at JMP Credit Advisors LLC ("JMPCA") from Cratos CLO are eliminated on consolidation in accordance with accounting principles generally accepted in the United States ("GAAP"). At June 30, 2012, the contractual base management fees earned from the CLO was 0.50% of the average aggregate collateral balance for a specified period.

The following tables present certain information with respect to the investment funds managed by HCS and CLOs managed by JMPCA:

                                                                                          Company's Share of Assets Under
(In thousands)                                   Assets Under Management (1) at                    Management at
                                                                                           June 30,            December
                                            June 30, 2012          December 31, 2011         2012              31, 2011
Funds Managed by HCS:
Hedge Funds:
Harvest Opportunity Partners II (2)        $         82,623       $            74,953     $     4,154         $     3,931
Harvest Small Cap Partners                          273,590                   324,453           4,341               5,112
Harvest Franchise Fund                               77,506                         0           1,990                   0
Harvest Agriculture Select (2)                       18,095                    12,149           2,234               1,995
Harvest Technology Partners (2)                      92,348                    58,712             103                 113
Harvest Diversified Partners                         23,145                    23,637          13,644              12,921
Private Equity Funds:
Harvest Growth Capital LLC (3)                       45,960                    23,691           2,086               1,195
Funds of Funds:
JMP Masters Fund                                     50,354                    52,853             104                 102
REITs:
New York Mortgage Trust                              34,024                    34,056             N/A                 N/A
Loans:
Harvest Capital Credit (3)                           24,016                    10,674           8,703               5,124
HCS Totals                                 $        721,661       $           615,178     $    37,359         $    30,493

CLOs by JMPCA:
Cratos CLO (3)                                      457,019                   470,910             N/A                 N/A
Other (4)                                             2,221                   104,473             N/A                 N/A
JMPCA Totals                               $        459,240       $           575,383     $       N/A         $       N/A

JMP Group Inc. Totals                      $      1,180,901       $         1,190,561     $    37,359         $    30,493

(In thousands)                      Three Months Ended June 30, 2012                            Three Months Ended June 30, 2011
                          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)            $       30       $            153     $            13     $       102       $            173     $            95
Harvest Small Cap
Partners                          215                  1,388                 747             252                  1,294               2,388
Harvest Franchise Fund           (158 )                  218                   0               0                      0                   0
Harvest Agriculture
Select (1)                         44                     47                  32              18                     21                   8
Harvest Technology
Partners (1)                      (17 )                  239                   6              10                     86                 241
Harvest Diversified
Partners                         (166 )                   42                  11             459                     77                  77
Private Equity Funds:
Harvest Growth Capital
LLC (2)                           328                    165                   0               8                    203                   0
Funds of Funds:
JMP Masters Fund                   (1 )                  123                   0              (1 )                  151                   0
REITs:
New York Mortgage Trust             0                    250                 221             224                    270                 743
Loans:
Harvest Capital Credit
(2)                               N/A                     54                 112             N/A                    N/A                 N/A
CLOs:
Cratos CLO (2)                    N/A                    603                   0             N/A                    599                   0
Other (3)                         N/A                      1                   0             N/A                    296                   0
Totals                     $      275       $          3,283     $         1,142     $     1,072       $          3,170     $         3,552

(In thousands)                      Six Months Ended June 30, 2012                              Six Months Ended June 30, 2011
                          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)            $      223       $           288     $           112     $       125       $            352     $            95
Harvest Small Cap
Partners                          102                 2,900                 741             277                  2,561               2,399
Harvest Franchise Fund            (10 )                 354                   0               0                      0                   0
Harvest Agriculture
Select (1)                        239                    80                  99              73                     43                  30
Harvest Technology
Partners (1)                       (9 )                 424                 624              12                    167                 309
Harvest Diversified
Partners                          722                    86                  63             685                    152                 117
Private Equity Funds:
Harvest Growth Capital
LLC (2)                           525                   326                  76             100                    406                   0
Funds of Funds:
JMP Masters Fund                    2                   246                   0               3                    302                   0
REITs:
New York Mortgage Trust            87                   500                 428             289                    540               1,464
Loans:
Harvest Capital Credit
(2)                               N/A                    78                 166             N/A                    N/A                 N/A
CLOs:
Cratos CLO (2)                    N/A                  1192                   0             N/A                  1,184                   0
Other (3)                         N/A                    23                   0             N/A                    590                   0
Totals                     $    1,881       $         6,497     $         2,309     $     1,564       $          6,297     $         4,414

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. Principal transaction revenues also include unrealized gains and losses on the private equity securities owned by HGC, a private equity fund managed by HCS which is 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").

Gain on sale and payoff of loans consists of gains from the sale and payoff of loans collateralizing asset-backed securities at JMP Credit Corporation ("JMP Credit"). Gains are recorded when the proceeds exceed our carrying value of the loan. Gain on sale and payoff of loans also consists of lower of cost or market adjustments arising from loans held for sale. Losses are recorded when the carrying value exceeds fair value.

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 loan restructuring fees at JMP Credit and revenues from fee sharing arrangements with, and fees earned to raise capital for third-party investment partnerships, or funds. Other income also includes non-recurring revenues associated with the conclusion of HCS's advisory relationship with NYMT. Refer to Note 2 in the Company's 2011 10-K for additional information regarding the termination of the advisory agreement between HCS and NYMT.

Interest Income

Interest income primarily consists of interest income earned on loans collateralizing asset backed securities issued, small business loans, and loans held for investment. Interest income on loans comprises the stated coupon as a percentage of the face amount receivable as well as accretion of accretable or purchase discounts and deferred fees. Interest income is recorded on the accrual basis in accordance with the terms of the respective loans unless such loans are placed on non-accrual status.

Interest Expense

Interest expense primarily consists of interest expense incurred on asset-backed securities issued and note payable. 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 Cratos. 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), on loans collateralizing ABS at JMP Credit, and on small business loans at HCC to record them at their estimated net realizable value. We maintain an allowance for loan losses that is intended to estimate loan losses inherent in its loan portfolio. 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. Our 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.

An allowance 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 Cratos 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 further 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 the current quarter in accordance with above. For those loans deemed impaired . . .