JMC Group, a leading distributor of annuities through banks, said its second-quarter earnings fell sharply, in part because of stepped up regulatory scrutiny.

The company, parent of James Mitchell & Co., said it earned $255,528 in the period, down 88% from the second quarter of 1993. The year earlier earnings, however, included a $712,904 gain from discontinued operations.

Revenues dropped 24% from a year earlier, to $9.7 million. James K. Mitchell, the company's president, blamed a "changing regulatory climate" and a rash of unfavorable media attention on banks' investment product programs.

JMC operates annuity sales programs at 7 institutions, including First Tennessee Bank, Memphis, and Central Fidelity Bank, Richmond.

Mr. Mitchell said volume at these institutions was dampened by tougher regulatory scrutiny that investment programs across the country are undergoing.

JMC's largest program is at Barnett Banks Inc., Jacksonville, which is under fire by Florida's insurance commissioner.

The commissioner, Tom Gallagher, claims the annuity sales program is illegal under state law, and has filed an administrative action against JMC.

JMC's second-quarter results, however, were an improvement from the first quarter, when the company lost $217,839.

The company is working on improving earnings by stepping up sales and decreasing costs, Mr. Mitchell said. The company has consolidated staff units and changed the way it is paid for the products it distributes.

The new compensation structure allows JMC to account for revenues at the time sales are made, instead of having to wait until later, when trail fees are received.

Despite the difficulties, and a stock price that has slumped to $2 from $3 in May, JMC Group shows promise, said Mark Matheson, an analyst who tracks the stock for Cromwell, Weedon, in Los Angeles.

"I think we're just about out of the woods," Mr. Matheson said. "They're doing what they should to improve things."

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